Oil Futures Firm but Glut Could Slow

With stock market uncertainty over the holiday, the week has been one of instability, to say the least.  Unfortunately, the New Year is going to continue this trend, particularly because of an oil glut, even as stocks seem to be in repair.

US shale numbers are expected to remain strong, adding to the existing, healthy supply.  Actually, the US passed both Russia and Saudi Arabia this year as the world’s biggest oil producer overall, with crude production soaring to a record 11.7 million bpd.

In addition, February numbers for Brent crude—the global benchmark—rose $1.44, or 2.7 percent, to rest at $54.65 per barrel. Of course, this is still down 8 percent for December, only recovering slightly from the 17 percent retreat on the year. And the energy markets are expected to decline for the first time in three years because of the glut.

Still, with stocks pointing upward, the market is certainly showing signs of restoration. This is mostly on the heels of progress regarding US trade with China, which seems to have mostly lifted sentiments on those assets generally received to be risky (like commodities).  Of course, the US economy is also still dealing with a weaker dollar, but that has actually encouraged investors in other currencies to choose US commodities.

Typically at the end of the year/beginning of the year, there is little to note about crude oil futures.  However, this year has been plagued by uncertainty and with the government shutdown—scheduled until at least January 4th—combined with energized concerns over the US-China trade dispute, investors are now concerned about the oil supply glut. More importantly, investors are worried about whether or not OPEC will lead production cuts to trim the fat and stabilize the prices.

Of course, oil consumption is another area for concern. As a matter of fact, many analysts project demand for oil will grow only slightly more than 1 million bpd next year. According to the US Energy Information Administration, oil growth clocked in at 1.54 million bpd, in 2018.

But even with Brent on the rise, its average price per barrel in 2018 was $71.76.  As such, the first half of 2019 will likely be dominated by concerns regarding the glut. Economists and analysts alike thus forecast North Sea Brent crude will probably average closer to $69 per barrel this year.  And that is a good sign for consumers.

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