Oil drops on rising US output, economic slowdown
- Oil benchmarks are trading in the red, possibly on oversupply fears.
- US oil rigs rise for the first time in 2019, while global growth slowdown could weaken demand-side pressures.
Oil prices on both sides of the Atlantic are reporting losses on the first trading day of the week, possibly due to oversupply fears.
The number of US oil rigs rose by 10 to 892 in the week ended Jan. 15 - the first weekly rise of 2019 - according to energy services firm Baker Hughes.
The uptick in oil rigs could be considered a sign that oil supplies from the world's biggest economy are set to rise further. Note that US oil production rose to a record high of 11.9 million barrels per day (bpd) in the week ending Jan. 11, according to the Energy Information Administration.
While supplies could rise, demand-side pressures could weaken substantially, courtesy of the US-China trade war, demand deficiency in Europe and the resulting slowdown in the global economy. The International Monetary Fund (IMF) revised lower its 2019 global growth forecast by 0.2 percentage points to 3.5 percent.
Put simply, the probability of the oil market being oversupplied in the near future is high. Oil prices, therefore, could feel the pull of gravity, although experts believe OPEC's output cuts could restrict the downside around $50.00. The Organization of the Petroleum Exporting Countries (OPEC) started supply cuts late last year to tighten markets and support prices.
As of writing, Brent oil is trading 11 cents or 0.18 percent lower on the day at $61.48 per barrel. Across the pond, WTI is also reporting moderate losses at $53.50 per barrel.
Author
Omkar Godbole
FXStreet Contributor
Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.
