Economy

Oil jumps on expectations producers may cut supply after 4% slump

Oil jumps on expectations producers may cut supply after 4% slump

A surprise build in USA crude inventories played upon the already frayed nerves of traders on Wednesday and caused them to send oil prices tumbling almost 5 percent to seven-months lows.

Oil prices steadied on Wednesday after falling at the start of the session, with the potential for damage to the global economy and fuel demand from the intensifying China-US trade dispute continuing to cast a shadow over the market.

The global oil benchmark, Brent crude, tumbled on Wednesday to $56 per barrel, its lowest level in seven years as the United States-China trade war worries gripped the market. Prices have lost more than 20% since hitting their 2019 peak in April.

Meanwhile, West Texas Intermediate (WTI) crude CLc1 futures were down 8 cents, or 0.15%, from their last close to $53.56 per barrel.

Brent has plunged almost 14 per cent since last week as global equity markets went into a tailspin after US President Donald Trump said he would slap a 10 per cent tariff on a further US$300 billion in Chinese imports from Sept 1.

Brent crude oil spot prices averaged Dollars 64 per barrel in July, nearly unchanged from the average in June 2019 but $10/b lower than the price in July of previous year.

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US President Donald Trump on Tuesday dismissed fears the trade row with China could be drawn out.

"The market continues to grow more uncertain about the demand outlook given the deterioration of trade talks between China and the US", ING analysts said in a note.

The EIA cut its 2019 oil demand growth forecast by 70,000 bpd. "Crude oil inventories were disappointing and the stock market is in worrisome territory".

Going forward and Looking at the EIA's global oil supply assumptions between July and December 2019, we notice that non-OPEC supply is expected to grow from 65.5M in July to 67M barrels in December, or 1.5M barrels growth. While China said the recent yuan depreciation was decided by the market, not Beijing, the USA has labeled the nation a currency manipulator, fueling concerns the trade conflict may escalate.

US crude oil inventories had declined for seven consecutive weeks prior to last week's build but were still about 2 per cent above the five-year average for this time of year, the US Energy Information Administration (EIA) said.

In the middle of July, the possibility of an imminent Fed rate cut and the flaring-up of the Iran-West tensions in the Middle East and the world's most important oil shipping lane, the Strait of Hormuz, resulted in hedge funds buying petroleum futures at the fastest pace in almost a year in the week to July 16, according to exchange data compiled by Kemp.