Oil Rebounds After Trade War Rout as Saudis Try to Calm Market
Kingdom reiterates confidence of OPEC+ action beyond June
WTI rises 1.7% to $54.39 after plunging 5.5% on Friday
By Tsuyoshi Inajima and Grant Smith
Oil rose as Saudi Arabia offered reassurance that OPEC will keep global crude markets in balance after concerns over the U.S.-China trade dispute triggered the steepest monthly slump this year.
Futures gained 1.7% in New York after another plunge on Friday concluded May’s 16% sell-off, which was driven by worries that the trade war will crimp fuel demand. Saudi Energy Minister Khalid Al-Falih said that recent volatility is “unwarranted” and reiterated his confidence that OPEC and its allies will keep taking action to stabilize the market beyond June.
The trade tensions mean oil has moved close to the edge of a bear market, having fallen about 18% from a high in late April. A tense situation in the Middle East hasn’t been enough to support prices. There could be greater clarity this week on whether Russia will keep cooperating with Saudi Arabia on production cuts as ministers from the countries meet in St. Petersburg.
“The market was overwhelmed by general bearish sentiment last week,” said Bjarne Schieldrop, Oslo-based chief commodities analyst at SEB AB. “Oil is not immune to global growth weakness but there is now a significant risk that the market is overselling.”
West Texas Intermediate crude for July rose 93 cents to $54.43 a barrel on the New York Mercantile Exchange at 8:21 a.m. in local time, after falling as much as $1.39 earlier. The contract is now down about 18% from its closing high on April 23.
Brent for August settlement advanced 66 cents to $62.65 a barrel on London’s ICE Futures Europe exchange. The July contract closed 3.6% lower at $64.49 before expiring on Friday. The global benchmark crude was trading at a premium of $8.08 to WTI.
There could be a recession in nine months if the U.S. imposes 25% tariffs on an additional $300 billion of Chinese exports and Beijing retaliates, according to Morgan Stanley. Investors may still be underestimating the risks to the global economy from the trade war, Chetan Ahya, the bank’s chief economist, wrote in a note released Sunday.
See also: Face it, OPEC. Russia is No Longer Your Friend: Julian Lee
“I would like to reiterate my confidence, based on my discussions with several key producers, and on our track record, that we will do what is needed to sustain market stability beyond June” Al-Falih said in an interview with state-run Saudi Press Agency. “We have previously stated our commitment to do whatever it takes to stabilize markets and we have delivered on those promises. And I am making that commitment again.”
Other oil-market news:
Saudi Arabia ramped up oil production last month by the most this year, largely filling the gap created by tougher U.S. sanctions on Iran, according to a Bloomberg survey.
Russia’s average daily oil output fell below its OPEC+ target in May for the first time this year after buyers refused to take exports via Druzhba, the nation’s key pipeline to Europe, because of contamination.
Saudi Arabia raised July pricing for all crude oil grades to Asia and cut rates for most grades to the U.S. and Europe.
Hedge funds increased short-selling on Brent crude prices by the most in more than a year in the week ended May 28.
Working oil rigs in the U.S. rose for the first time in four weeks, according to data released Friday by oilfield services provider Baker Hughes.
With assistance from James Thornhill.
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