Oil prices reversed course and turned sharply higher in mid-morning trade yesterday.
Brent crude rose $2.60, or 4.8 per cent, to $56.40 a barrel after trading as low as $52.51 earlier. U.S. West Texas Intermediate crude rose $2.22, or 4.9 per cent, to $47.63.
This came after earlier falling more than $1 a barrel as the world’s top producers pump at record highs and signs of economic slowdown unnerve the market.
Traders pointed to signs that Saudi Arabia is beginning to make good on vows to cut output. Saudi exports in December fell by about half a million barrels per day to stand at 7.253 million bpd, according to tanker-tracking data from Bloomberg.
Figures from ClipperData have shown that loadings of Saudi crude on ships bound for the United States have been falling in recent months. The Saudis have used the price-boosting strategy in the past to shrink U.S. stockpiles, the most transparent and closely-watched inventories in the world.
The “Saudis are trying to engineer a fall, if not plunge, in U.S. crude oil inventories to give the appearance of global tightness,” said John Kilduff, founding partner at energy hedge fund Again Capital.
Oil prices rebounded shortly after WTI hit a session low at $44.35 a barrel and as the U.S. stock market reversed some of its earlier losses.
“Typically in the beginning of a new quarter or new year you get new fresh money coming in. I think that’s part of it,” said Kilduff.
Earlier in the day, oil prices had slumped against a bearish backdrop. Russia reported that it pumped 11.16 million bpd in 2018, marking a post-Soviet era record. This came just two days after the U.S. government figures showed the nation’s output hit another all-time high in October at 11.54 million bpd.
“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.
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.
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 yesterday 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 yesterday 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.