Oil steadies as tightening supply offsets weak economic outlook

Last week, futures posted their fourth straight week of losses on fears of a slowdown

An operator conducts a wireline survey on a natural gas rig drilling in North Texas. Bloomberg

Oil prices were steady on Monday as prospects of tight crude supply outweighed concerns about weakening fuel demand in the US and China.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.76 per cent higher at $74.73 a barrel at 4.29pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 0.80 per cent at $70.60 a barrel.

Both Brent and WTI were about 1 per cent down in morning trading.

“Weakening economic data from both China and the US continues to raise questions around the degree of demand for oil,” Jeanne Walters, senior economist at Emirates NBD, said in a research note.

Crude futures settled lower on Friday to post their fourth consecutive week of losses amid fears of an economic slowdown.

US consumer sentiment fell to a six-month low in May on fears that the world's largest economy would default on its debt for the first time in history, according to a survey.

Preliminary readings from the University of Michigan's consumer sentiment survey pointed to a sharp drop in consumer sentiment this month, dropping to 57.7 from 65.3 in April.

Consumer expectations for one-year ahead inflation dipped marginally, falling to 4.5 per cent in May, from 4.6 per cent the previous month.

Meanwhile, long-term inflation expectations ticked up to 3.2 per cent from 3 per cent in April, reaching a 12-year high.

“There were falls in both the current and expected conditions sub-components, possibly on the back of concerns about the debt ceiling,” said Ms Walters.

The US is weeks away from a potential default on its debt, an outcome that would adversely hit American consumers as well as the economy and send shock waves across the entire global financial system.

The debt ceiling, or debt limit, is the maximum amount of debt the Treasury Department can borrow to fulfil its financial commitments.

The White House and Republican members of Congress are currently in a stand-off over raising the debt ceiling.

Futures also slid on signs of easing supply tightness in the market.

Iraq does not expect Opec+ to make further cuts to crude output at its next meeting in June, the country’s Oil Minister told Reuters in an interview on Friday.

“At the next meeting, which will be held on the 3rd and 4th [of June], there will be no additional reduction, and as for Iraq, we cannot reduce further,” said Hayan Abdel Ghani.

Brent has lost nearly 13 per cent of its value since Opec+ producers announced voluntary output cuts of 1.16 million barrels per day on April 2.

The cuts, which will be in place from May until the end of the year, are aimed at ensuring oil market stability, the producers said at the time.

Last week, UAE's Minister of Energy and Infrastructure Suhail Al Mazrouei said he was not concerned about the oil market in the short term.

“I’m not that worried about the very short term, I think we can manage balancing the supply with demand,” he told reporters on the sidelines of the World Utilities Congress in Abu Dhabi.

Haitham Al Ghais, Opec’s secretary general, called for more investment in the oil and gas industry to meet surging global demand, the state-run UAE news agency Wam reported on Sunday.

“The challenges for energy, climate and sustainable development are enormous and this means the parameters of the discourse need to be inclusive,” Mr Al Ghais was quoted as saying.

“We believe that not enough investment is going into all energies. To put it simply, the sustainability of the global energy system is at stake. We are playing catch-up on investments. We need a long-term, investment-friendly climate that works for producers and consumers.”