Crude Hits Pause on Rally as Markets Reassess Economic Outlook

* WTI erases earlier gains but is still up over 8% this week
* Price direction may hinge on OPEC+ pledge, U.S.-China talks

By Grant Smith and Alex Nussbaum

(Bloomberg) —

Oil prices dipped Friday as investors hit pause on the New Year’s rally to assess the economic outlook and OPEC’s ability to counter the U.S. shale boom.

Futures in New York fell as much as 2.7 percent, threatening to end a nine-day rebound that’s pushed crude back into a bull market. Prices slipped along with the S&P 500 as the U.S. government shutdown showed no signs of ending and the dollar spiked, making barrels denominated in the U.S. currency less attractive.

“It could be a just a slight risk-off environment after four days of quite strong rallying in asset markets,” said Frances Hudson, global thematic strategist at Aberdeen Standard Investments in Edinburgh.

West Texas Intermediate for February delivery slipped 76 cents, or 1.5 percent, to $51.83 a barrel on the New York Mercantile Exchange as of 11:14 a.m. local time. It’s still on track for a gain of more than 8 percent this week.

Brent for March settlement fell 68 cents to $61 a barrel on ICE Futures Europe. Earlier in the day, it had been on track for a record-setting 10th straight day of increases. The global benchmark crude traded at a premium of $8.72 a barrel to WTI for the same month.

Crude’s direction in the coming weeks may be determined by whether the Organization of Petroleum Exporting Countries, and allies including Russia, continue to implement output cuts promised for the first six months of 2019 — and whether they’re enough to offset American crude.

Also crucial will be the outcome of trade negotiations between the U.S. and China, the world’s two biggest economies. A deal between the nations could boost flagging global growth that underpins oil demand.

“On the supply side things have become much more to OPEC’s liking,” according to Hudson. “The question is how much more is production going to increase in the U.S.”

–With assistance from Tsuyoshi Inajima, Alex Longley and Sharon Cho.

To contact the reporters on this story:
Grant Smith in London at gsmith52@bloomberg.net;
Alex Nussbaum in New York at anussbaum1@bloomberg.net

To contact the editors responsible for this story:
Simon Casey at scasey4@bloomberg.net;
James Herron at jherron9@bloomberg.net
Catherine Traywick