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Oil prices are down on trade worries and rebound in OPEC & Russia.

Oil prices are down on trade worries and rebound in OPEC & Russia output

Brent 1st-nearby prices are back below $59/b. New tensions between US and China and rebound in oil production in both OPEC countries and Russia weighed negatively on prices.

Main Events China officially complained to the WTO about tariffs imposed by the US on imports of its products. There is of course no evidence that negotiations may restart and be productive anytime soon, despite reassuring comments from both sides last week.

For the oil market and more generally global trade, this means there is no light at the end of the tunnel. Demand growth forecasts will continue to be revised down in the coming months. In addition, the discipline inside the OPEC+ group shows signs of fatigue. According to estimates, OPEC output increased by 0.7% in August compared to July, the first monthly increase in 2019.

Saudi Arabia and Nigeria contributed the most. Saudi Arabia’s efforts to limit output have more than offset slippages of its partners since the start of the year. There is no change of strategy from Saudi Arabia, but this shows that the country’s output may have reached its bottom. As far as Russia is concerned, no change of strategy either officially. The rebound in output marks the end of the Druzhba pipeline contamination and the come back to normal. Russia promises to respect its OPEC+ target next month, which would imply about a 100k output cut compared to August.

Outlook Unless we have news on trade war or a sudden change of trajectory of hurricane Dorian that devastated Bahamas but should just move along the South Eastern Coast of the US, the market may now focus on the EIA report that will be released tomorrow. Oil prices could edge down further if the US PMI and ISM are weak for example, but should otherwise remain not too far from $60/b.

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