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Despite Weighed Down By Growth Fears, Oil Rises To $51 After Steep Drop

Despite Weighed Down By Growth Fears,  Oil Rises To $51 After Steep Drop
As the concerns of the oil industry and the oil market about the future of the global economy, that drove down global oil prices to its lowest since June 2017, ebbed away amidst perceptions that such concerns were overdone and aided by an OPEC-led effort to tighten supply, the global price of oil edged up to $51 a barrel on Wednesday.
In recent months, the ongoing trade war between the US and China had cast a shadow over the prospect of the global economy and those concerns were compounded by wider financial market weakness such as the U.S. government shutdown and the higher U.S. interest rates. These factors had also impacted the global crude industry.
On Wednesday, Brent crude, the global benchmark, was up 43 cents at $50.90. Earlier, the value had fallen to $49.93 which was the lowest for it since July 2017 amidst a drop of 6.2 per cent in the previous session. U.S. crude was up 74 cents at $43.27.
“I think there is a little bit of over-extension to the downside linked to global market fears,” said Olivier Jakob, analyst at Petromatrix. “It’s all about equities”. Jakob added: “OPEC has shown it wants a higher prices and is working towards that goal.”
The Christmas holidays resulted in limited trade. But there was a continued drop in Asian stock markets on Wednesday. Markets in Britain, Germany and France will remain closed on Wednesday.
Jakob said that despite the concerns over the global economy weighed down on the global crude prices, the forecast for the market is not as bleak as it was back in 2016 when prices dropped very sharply because of a global supply glut. This time however, the Organization of the Petroleum Exporting Countries has put in efforts to shore up the market.
Earlier this month, the previous strategy of OPEC to pump more oil which was taken in June 2018 was overturned by OPEC and its allies including Russia and returned to its former strategy of cutting down on oil production. The oil makers are again set to cut production in 2019. This decision flowed from concerns among the oil producers of a new glut possibly forming in the global crude market.
According to the new strategy of the oil manufacturers’ alliance, known as OPEC+, the production o crude would be lowered by 1.2 million barrels per day. Out of this, OPEC would account for a reduction of 800,000 bpd starting next year. Some of the oil ministers of the oil producing countries have even pressed for taking further action.
After firmer trading in U.S. equity futures, there has been some interest back in buying, said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore. However, he also added that concerns over economic issues would continue to have an impact unless the market is remeasured by OPEC so justify the viability of the supply cuts and “even imposes deeper ones as some members have suggested”.

Christopher J. Mitchell

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