Oil keeps falling on growth fear after worst weekly loss in 2019

A worker waits to connect a drill bit on Endeavour Energy Resources LP’s Big Dog Drilling Rig 22 in the Permian basin outside of Midland, Texas, US. (Bloomberg pic)

NEW YORK: Oil fell toward the lowest level in almost two weeks as global growth concerns continued to damp the demand outlook, with investors hoping for positive news from high-level US-China trade talks this week.

Futures dropped as much as 1.6% in New York, following a 4.6% decline last week that was the biggest this year. US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are heading to Beijing for discussions before a March 1 deadline set by the US to more than double tariffs on US$200 billion of Chinese goods. Hedge funds ploughed back into bearish bets on Brent crude in the week through Feb 5.

West Texas Intermediate oil has reversed course after the best January on record as a lack of progress on the trade war and growth warnings from Europe, Asia and elsewhere depressed the demand outlook. In more bearish news, American drillers added seven working oil rigs last week, bolstering concern that record US production will undermine efforts by the Organisation of Petroleum Exporting Countries and its allies to curb a global glut.

“We’ll see oil trading in a range between US$50 to US$55 a barrel in the short term as uncertainties linger over the US-China trade negotiations, as well as over wider economic growth,” said Vincent Hwang, a commodities analyst at NH Investment & Securities in Seoul. Crude is likely to recover to near US$60 a barrel in the longer term once the macroeconomic concerns ease, he said.

West Texas Intermediate oil for March delivery dropped 60 cents to US$52.12 a barrel on the New York Mercantile Exchange at 7.53 am in London after falling as much as 82 cents earlier. The contract closed 8 cents higher at US$52.72 on Friday.

Brent for April settlement lost 30 cents to US$61.80 a barrel on the London-based ICE Futures Europe exchange. The contract climbed 47 cents to US$62.10 on Friday. The global benchmark crude was at a US$9.29 premium to WTI for the same month, the highest in more than seven weeks.

Investors are hoping that the world’s two biggest economies can get their trade talks back on track after US President Donald Trump said last week that he’s unlikely to meet with his Chinese counterpart, Xi Jinping, before the end of the 90-day truce on March 1. Fears are intensifying a deal won’t be reached, which could spur a tit-for-tat escalation that would make an already shaky global growth outlook even worse.

Short-sellers boosted wagers by 28%, the most since October, that Brent crude prices would fall, according to data released Friday by ICE Futures Europe Exchange. Net-longs – the difference between bets on a Brent increase and wagers on a decline – nudged up by less than 1%.

A slew of reports due this week may provide fresh direction for oil markets. The Energy Information Administration and Opec will publish data including their market outlooks on Tuesday. The Paris-based International Energy Agency and BP will also put out reports containing their demand forecasts on Wednesday and Thursday, respectively.