Oil prices reverse course and trade sharply higher

Oil Prices

From Tom DiChristopher : Russian and U.S. output sets records and Iraq boosts exports.

  • Crude oil supply cut by OPEC and its allies, including Russia, takes effect in January.
  • China’s factory activity falls, adding to concern about economic slowdown and fuel demand.

Oil prices reversed course and turned higher in mid-morning trade on Wednesday, after falling more than $1 a barrel on rising output from major producers and concerns about an economic slowdown.

Brent crude rose $1.70, or 3.2 percent, to $55.50 a barrel at 10:39 a.m. ET (1539 GMT), after trading as low as $52.51 earlier. U.S. crude rose $1.28, or 2.8 percent, to $46.69, rebounding shortly after hitting a session low at $44.35.

Russian production hit a post-Soviet record in 2018, figures showed on Wednesday. Other data showed U.S. output reached a record in October and Iraq boosted oil exports in December.

“The omens are far from encouraging,” said Stephen Brennock of oil broker PVM, citing rising non-OPEC supply and the likelihood of further increases in oil inventories.

“The current bearish bias will therefore continue in the near term and it stands to reason that oil will struggle to break out from its current trough,” he said.

However, Nitesh Shah, director of research at WisdomTree, saw the prospect of a rebound for Brent because of an OPEC-led supply cut that starts this month and moderating U.S. supply growth.

“We believe we will see an upward correction,” he said. “Recent weakness in prices should slow the growth of U.S. shale production.”

Oil prices fell in 2018 for the first year since 2015 after buyers fled the market in the fourth quarter over growing worries about excess supply and the economic slowdown.

Surging shale output has helped make the United States the world’s biggest oil producer, ahead of Saudi Arabia and Russia. Oil production has been at or near record highs in all three countries.

U.S. President Donald Trump celebrated the low prices. “Do you think it’s just luck that gas prices are so low, and falling? Low gas prices are like another Tax Cut!” he wrote on his official Twitter account on Tuesday.

Adding to concern about economic slowdown, a series of purchasing managers’ indexes for December mostly showed declines or slowdowns in manufacturing activity across Asia — the main growth region for oil demand.

China issued its first batch of crude import quotas for 2019 on Wednesday at a lower volume than for the same batch a year ago, though expectations are for the volumes to climb later this year.

Independent market analyst Greg McKenna said in a note on Wednesday that it was “difficult for traders and investors to ignore what looks like a genuine global economic slowdown.”

The signs of rising production illustrate the challenge faced by OPEC and allies including Russia, which are returning to supply restraint in 2019, to support the market.

But OPEC is hopeful the supply-cutting deal will work. The energy minister for the United Arab Emirates said on Tuesday he remained optimistic about achieving a market balance in the first quarter.

The United States Oil Fund LP (USO) was trading at $10.02 per share on Wednesday morning, up $0.36 (+3.73%). Year-to-date, USO has declined -16.57%, versus a -6.06% 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 CNBC.