Oil market update

Brent price finds support between USD60 and USD70

Increased pressure from President Trump on the Saudis to halt oil production cuts last week had only a temporary impact. Brent prices are currently being underpinned by several factors, including hopes of a US-China trade deal and OPEC+ production cuts, in particular. The Saudis have been aggressively cutting their production recently. With output of 10.1m barrels/day (mbd) in February, they are already below their 10.3mbd agreed target. In so doing, they are fully exploiting a window of opportunity, as US oil supply response capacity is capped due to current pipeline bottlenecks.

This context offers support for the Brent price to navigate in the USD60-70 corridor. H2 2019 is likely to prove less supportive for oil prices, as increased Permian oil export capacities may well cause the oil supply-demand balance to shift into surplus. This increased export capacity from the US is likely to prompt a change of tack by OPEC, as maintaining production cuts will prove too costly in terms of market share. As a result, there is the risk of worries bubbling up in the oil market – as they did in late 2018 – about being flooded by a glut of oil.

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