• Friday, March 29, 2024
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Brent crude set for best ever rally on OPEC led supply cuts, trade optimism

Brent crude set for best ever rally on OPEC led supply cuts, trade optimism

Brent prices the benchmark for Nigeria’s crude oil is heading for its best ever run of gains thanks to Organization of Petroleum Exporting Countries (OPEC) production cuts and hopes that the United States and China may soon resolve their trade dispute which will automatically strengthen the financial market.

International Brent crude futures were at $62.30 per barrel up 62 cents, or 1 percent while U.S. West Texas Intermediate (WTI) crude futures gained 59 cents or 1.1 percent at $53.18 per barrel.

“The oil market looks to be broadly balanced in 2019, an improvement on 2018 which turned out oversupplied,” Morgan Stanley analysts Martijn Rats and Amy Sergeant wrote in a note. “This supports a partial oil price recovery.”

The investment bank says that the plunge in oil prices has “overshot,” with the selloff having been magnified in December due to the global financial turmoil.

“To be sure, the fundamentals did turn negative, with weaker expectations for demand, weaker time spreads in the futures market, and higher inventories. In the short run, the ramp up of OPEC+ supply before the December decision to slash output will take time to filter through the market,” Morgan Stanley said in its report.

Morgan Stanley argues that a similar thing happened the first time around when OPEC+ agreed to cut production at the start of 2017. Producers ramped up output in the weeks and months ahead of the deal, and that new oil set sail just ahead of the implementation of cuts.

Oil markets are receiving support from supply cuts led by OPEC and aimed at reining in a glut that emerged in the second half of 2018 while lower oil exports from Iran since November, when U.S. sanctions against it resumed, have also supported crude.

Playing a key part in the emerging glut was the United States, where crude oil production soared by more than 2 million barrels per day (bpd) in 2018 to a record 11.7 million bpd.

Brent has climbed some 20 per cent compared with just two weeks ago, prior to an oil production cut by Opec and non-cartel producers from January 1.