Oil Dips After U.S. Warns On Health Of Global Economy
Oil prices edged lower on Friday after the U.S. central bank warned on the health of the global economy and bearish signs persisted that the world’s biggest crude producers would keep pumping at high levels to maintain market share.
The Federal Reserve decided against raising interest rates from historic lows on Thursday, saying uncertainty about global economic growth had forced its hand.
The oil market had mixed reactions to the decision, with concerns about economic weakness sending commodities and equities lower, but a fall in the dollar against other currencies meant buying dollar-traded crude became cheaper.
“The perception of ‘ZIRP (Zero Interest Rate Policy) forever’ should provide some underlying support to the commodity complex,” said Olivier Jakob, a strategist at Petromatrix, a Swiss-based consultancy.
Brent crude LCOc1 was down 15 cents at $48.93 a barrel at 1100 GMT, after touching an intraday high of $49.75. U.S. West Texas Intermediate (WTI) crude futures CLc1 were trading at $46.33 a barrel, down 57 cents.
Brent was set to make its first weekly gain in three weeks, hinting at a turn in momentum for a commodity that has declined nearly 30 percent since spring.
Front-month U.S. crude futures have strengthened this week to their firmest versus Brent since the early days of the U.S. shale oil boom, knocking off 70 percent of their discount to the global benchmark to around $2 per barrel.
Kuwait, a key member of the Organization of the Petroleum Exporting Countries (OPEC), said on Thursday the oil market would balance itself but that this would take time, indicating support for the group’s policy of defending market share despite falling prices.
Other sources at OPEC backed this view, saying they expected oil prices to rise by no more than $5 a barrel per year to reach $80 by 2020, with a slowing in rival non-OPEC production growth not enough to absorb the current oil glut.
Iran’s deputy oil minister Rokneddin Javadi was quoted as saying the country would unveil new oil contracts in the coming weeks, earlier than previously expected.
The prospect of sanctions-free Iran adding more barrels to an already oversupplied market is fuelling bearish momentum. Javadi also reiterated Iran’s plans to regain its oil production share once Western sanctions are removed.