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Oil Rebounds as OPEC+ Restraint Outshines Trade-War Uncertainty

Alex Nussbaum
Oil Rebounds as OPEC+ Restraint Outshines Trade-War Uncertainty

(Bloomberg) -- Oil bounced back from a midday slump, as hints of extended production cuts by top crude producers overshadowed President Donald Trump’s latest provocation in the trade standoff with China.

Futures in New York ended a choppy trading session 0.5% higher, as investors digested conflicting supply and demand signals. For the moment, they were won over by Saudi Energy Minister Khalid Al-Falih’s push this weekend for the OPEC+ coalition to “stay the course" on output curbs. Yet, ongoing tensions between the U.S. and China have kept price rallies limited. Brent closed lower after fluctuating between gains and losses.

“You’ve got some conflicting influences on the market and the price action today is pretty indicative of that," said Tyler Richey, co-editor at Sevens Report Research in Palm Beach Gardens, Florida. “The OPEC headline was a positive, although not necessarily a huge change versus expectations, and the trade-war risks are definitely a negative."

The U.S. benchmark crude has advanced nearly 40% this year as OPEC members and other producers work to tighten global inventory levels. In fact, Bank of America Merrill Lynch says oil supply and demand forecasts suggest a nearly balanced oil market this year followed by a deficit in 2020.

West Texas Intermediate crude for June delivery, which expires on Tuesday, rose 34 cents to settle at $63.10 a barrel on the New York Mercantile Exchange. The more actively-traded July contract climbed 0.5% to end the session at $63.21.

Brent for July settlement slipped 24 cents to settle at $71.97 a barrel on the London-based ICE Futures Europe exchange. The spread between the first and second month contracts remains in strong backwardation, indicating tight supply.

At this weekend’s meeting of ministers, Saudi Arabia and other nations signaled they prefer extending the current production-cut agreement until year-end.“We need to stay the course, and do that for the weeks and months to come,” Saudi Arabia’s Al-Falih told reporters after the meeting in Jeddah on Sunday. The kingdom “isn’t fooled” by crude prices and believes the market is still fragile.

Yet, Russia took a difference stance. The most important non-OPEC partner in the coalition is ready to consider easing cuts if the market needs more crude, Russia’s Energy Minister Alexander Novak said. Still, Russia would comply with any agreed output limit in the second half of 2019, he said.

As for the escalation of the U.S.-China trade war, President Trump further clouded the outlook for oil consumption on Monday, saying in an interview that he was “very happy" with the results of the trade battle. Yet, he also amplified worries about supply risks, tweeting over the weekend that a fight with the U.S. would be “the official end of Iran.”

--With assistance from James Thornhill, Tsuyoshi Inajima and Alex Longley.

To contact the reporter on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net

To contact the editors responsible for this story: Serene Cheong at scheong20@bloomberg.net, Jessica Summers, Reg Gale

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