Oil drops from 12-week high as demand woes overshadow output cut

SINGAPORE: Oil retreated from a 12-week high as optimism spurred by Saudi Arabia’s surprise output cut was overshadowed by demand concerns.

Futures in New York dropped as much as 0.6% after climbing 1.3% on Friday as the Saudis surprised the market with a significant supply cut beyond what was agreed to with fellow Opec+ members.

Meanwhile, Chinese exports fell unexpectedly in November, according to data released over the weekend, yet more evidence of the toll the trade war is taking on global commerce.

The kingdom pledged to pump 400,000 barrels a day less than mandated by Opec+, translating to total overall curbs or 2.1 million barrels a day.

Goldman Sachs Group Inc raised its 2020 Brent forecast after the move, saying it was a shift to managing short-term physical imbalances rather than trying to correct long-term imbalances through open-ended commitments.

The announcement came after hedge funds had earlier slashed bullish wagers on WTI crude.

“The soft Chinese numbers have outweighed the Opec+ cuts, once again reinforcing the heavy focus on demand at present,” Howie Lee, an economist at Oversea-Chinese Banking Corp.

“With just a week left before a fresh set of US tariffs kick in, there’s also a bit of apprehension in the market.”

West Texas Intermediate for January delivery fell 28 cents, or 0.5%, to $58.92 a barrel on the New York Mercantile Exchange as of 9.47am in Singapore.

The contract closed at US$59.20 on Friday, the highest since Sept 17. It climbed 7.3% last week, the most since mid-June.

Brent for February settlement dropped 23 cents, or 0.4%, to US$64.16 a barrel on the London-based ICE Futures Europe Exchange. The contract rose 1.6% on Friday, ending the week 3.1% higher.

The global benchmark crude traded at a US$5.34 premium to WTI for the same month.