Oil prices decline, fail to extend rally after OPEC-led production cut

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December 10, 2018 12:30pm NYSE:USO

Oil Prices

From Myra P. Saefong & RACHEL KONING BEALS: Oil futures moved lower on Monday in a bout of consolidation after an announced OPEC-led production cut on Friday triggered a rally in prices for the session and the week.

West Texas Intermediate crude for January delivery CLF9, -1.94%  fell $1.07, or 2%, to $51.54 a barrel on the New York Mercantile Exchange. The contract logged a roughly 3.3% weekly gain through Friday, according to Dow Jones Market Data.

Global benchmark February Brent crude LCOG9, -1.35%  fell $1.09, or 1.8%, to $60.58 a barrel on ICE Futures Europe. It was up 3.7% for last week.

Prices had fallen by more than 30% by late November, after reaching multiyear highs as recently as early October, pushing Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, and its biggest production allies, into action.

Oil futures climbed roughly 2% across the board, and as much as 4% at one point, on Friday as OPEC announced that it will reduce overall production by 800,000 barrels a day from October’s levels for six months, beginning in January. They didn’t specify the output cut by nonmembers, which include Russia, but news reports pegged the nonmember cuts at 400,000 barrels a day, to bring the total reduction to 1.2 million barrels a day.

Read: U.S., Russia overshadow oil market’s ‘collective sigh of relief’ for OPEC’s output-cut deal

“The demand side remains questionable as global growth fears continue to dominate,” said Richard Perry, market analyst at Hantec.

“The importance of Russia as a perceived linchpin has grown and their participation in cuts is key. However, a cut of 1.2 million barrels per day agreed by ‘OPEC+’ is less than 1.5 million perhaps needed to drive a rally, but could now stabilize the price. It will be demand-driven price moves now,” Perry said.

Read: Oil-linked currencies rally as OPEC members reportedly reach agreement to curb production

The recent decline in crude prices came as jitters pegged to international trade relations between China and the U.S. escalated, and raised concerns about demand for oil from these economic giants.

“It didn’t take long for Friday’s OPEC+ planned production to get priced in as focus turned back to the potential impact of worsening U.S.-China trade tensions continues to drag on the outlook for resource demand,” said Colin Cieszynski, chief market strategist at SIA Wealth Management, in a daily note.

“Over the weekend China reported a big $44.75 [billion] trade surplus for November, way above the $34.0B surplus that had been expected, throwing gasoline on the fire,” he said. That followed “confusion over what the U.S. and China agreed to at the recent G-20 summit, and concerns over what the arrest of [Huawei Technologies’] CFO could have on future negotiations.”

For its part, U.S. production also remains in focus. Last week, the Energy Information Administration said U.S. crude supplies fell by 7.3 million barrels for the week ended Nov. 30. That marked the EIA’s first reported weekly supply decline in 11 weeks. Data released Friday from Baker Hughes BHGE, -2.72% also implied a decline in future output, with the number of active U.S. rigs drilling for oil down by 10 at 877.

In other Nymex trading, January gasoline RBF9, -2.78%  fell 2.1% to $1.455 a gallon, after a weekly rise of about 6%, and January heating HOF9, -0.84%  traded at $1.872 a gallon, down 0.8%, after a weekly gain of 3.1%.

January natural gas NGF19, +1.85%  lost 0.5% to $4.466 per million British thermal units. It suffered a weekly drop of 2.7%. The EIA on Friday reported that domestic supplies of natural gas fell by 63 billion cubic feet for the week ended Nov. 30, more than the 57 billion forecast by analysts polled by S&P Global Platts.

The United States Oil Fund LP (USO) was trading at $10.93 per share on Monday afternoon, down $0.18 (-1.62%). Year-to-date, USO has declined -8.99%, versus a -2.17% rise in the benchmark S&P 500 index during the same period.

USO currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 108 ETFs in the Commodity ETFs category.

This article is brought to you courtesy of MarketWatch.

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