Oil tumbles 5% after Opec hints at smaller output cut

(Bloomberg pic)

LONDON: Oil lost nearly 5% on Thursday, after Opec signalled it may agree to a smaller output cut than expected and as concern over the economic impact of trade tensions hit global stocks.

The Organisation of the Petroleum Exporting Countries (Opec) is meeting in Vienna to decide its production policy in coordination with non-Opec producers including Russia, Oman and Kazakhstan.

Expectations had been for a joint cut of between 1 and 1.4 million barrels per day (bpd), until Saudi energy minister Khalid al-Falih said before the meeting that the “OPEC+” group would be happy with a cut of just 1 million bpd.

Brent crude futures fell US$2.72 on the day to US$58.84 a barrel by 1043 GMT, having hit a session low of US$58.36, while US futures were last down US$2.32 at US$50.57 a barrel. The two have lost 30% in value this quarter alone.

“Overall, this shows the weak momentum in the market right now and it has clearly not been helped by what has happened over niovernightth the sell-off in stocks and weakness in bond yields,” Saxo Bank senior manager Ole Hansen said.

“But (Opec) knows how to handle markets. They might be talking it down and then delivering a sucker-punch a bit later, that could also be the outcome.”

Led by Saudi Arabia, Opec’s crude oil production has risen by 4.1% since mid-2018, to 33.31 million bpd.

Oil output from the world’s biggest producers – Opec, Russia and the United States – has increased by a 3.3 million bpd since the end of 2017, to 56.38 million bpd, meeting almost 60 percent of global consumption.

“The proverbial rabbit needs to be pulled out of the hat. Are we going to see it or not?” Saxo’s Hansen said.

European equities hit their lowest in two years and commodity-sensitive currencies such as the Russian rouble fell sharply, in part because of the slide in the oil price, but also with the arrest of a top executive of Chinese tech giant Huawei in Canada for extradition to the United States

The arrest of Huawei’s chief financial officer Meng Wanzhouof, who is also the daughter of the firm’s founder, triggered renewed fireworks coming just as Washington and Beijing prepare for crucial trade negotiations.

Barclays said in its Global Outlook published on Thursday that “investors need to lower their expectations” and that “2019 should be a period of lower returns and higher volatility”.

Barclays said that it expected “the global economy to slow over the next several quarters” although it added that “not one major economy is near recession.”