Oil Rebounds From Near 2019 Lows

Crude prices rallied Thursday from near their lows for the year as investors’ anxiety about global growth prospects showed signs of easing.

Brent crude, the global benchmark, was up 1.3% at $56.49 a barrel on London’s ICE Futures exchange, after closing at its lowest level since Jan. 3. On the New York Mercantile Exchange, West Texas Intermediate futures rose 2% to $52.06 a barrel.

Thursday’s uptick left Brent down 8% on the week, with U.S. crude down 6.5%. Those losses were larger before a media report late Wednesday said that Saudi Arabia was considering taking action to halt heavy selling.

The world’s largest oil exporter had contacted other crude-producing nations to discuss policy responses to dropping prices, according to Bloomberg.

The kingdom has already exceeded its production cut requirements from the deal between the Organization for the Petroleum Exporting Countries and its allies that was extended in July. The form further action might take remains unclear.

“It’s very understandable that they’d start interfering with prices at these levels—Brent in the mid-50s is not good for them,” said Georgi Slavov, head of research at Marex Spectron. “I more than expect them to interfere aggressively, but whether they’ll do that formally, asking for an emergency meeting of OPEC, or simply engineer a rebound through statements is anyone’s guess.”

Oil prices plunged 7% last Thursday—their largest daily move of the year—as President Trump announced fresh tariffs on roughly $300 billion of Chinese imports.

Prices have swung wildly intraday since then, with daily trading volumes hitting their second highest level of 2019 on Wednesday according to FactSet, when U.S. data showed a surprise increase in crude stockpiles. This sparked fresh anxieties about weakening fuel demand alongside flagging global economic growth.

However, inventory data from the Energy Information Administration flew in the face of this, showing a 2.4 million barrel-rise in stockpiles on the week.

The possible stock-build fueled investors’ worries about slowing global growth, with oil “oversold after those weekly stats went in opposite directions,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas.

The oil rout began when President Trump announced fresh tariffs on Chinese imports.


Photo:

Simon Dawson/Bloomberg News

A pause in hostilities between the U.S. and China appeared to be helping to drive oil’s recovery. Equities indexes gained Thursday morning, with foreign exchange moves also calmer, after China’s central bank set the official yuan rate Wednesday at a level stronger than many had predicted, according to Mr. Tchilinguirian.

Should Saudi Arabia make deeper oil supply cuts, Riyadh may experience the same problems it faced in trying to enforce those already in place.

Numerous oil-exporting countries, often ones facing geopolitical strife and economic strictures, have received de facto exemptions from fulfilling their cuts.

Some analysts have even touted the likelihood of Russia flouting its quotas amid pressure from oil companies, now that the flow from the Druzhba pipeline has returned to normal after it suffered chloride contamination in April.

“A starting point would be to ensure that all members of the current output cut deal are at least in compliance—members such as Iraq and Nigeria,” ING strategists said.

Oil prices could receive another negative jolt Friday from the International Energy Agency’s monthly market report. The IEA has already downgraded its oil demand growth forecast for 2019 and Executive Director Fatih Birol intimated in July that the agency would cut its forecast by another 100,000 barrels to 1.1 million barrels a day in its August report.

Rather than discussing whether the IEA will cut, investors were asking whether the cut will be deeper than 100,000 barrels, said Giovanni Staunovo, a commodity analyst at UBS Wealth Management.

Write to David Hodari at David.Hodari@dowjones.com

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