(Montel) Oil trades flat as economic concerns offset Opec cuts

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Oil prices were trading flat on Monday as persistent macroeconomic concerns helped offset the impact of Opec’s recently announced output cut.

The front-month contract for Brent crude North Sea oil was last seen up USD 0.06 at USD 86.37/bbl, while the WTI equivalent was USD 0.02 higher at USD 82.54/bbl – with the benchmarks recording their fourth consecutive weekly gain last week.

“With the Opec/non-Opec output cuts announced a fortnight ago fully baked in… crude prices have defaulted to tracking the daily mood in the broader financial markets,” said Vanda Insights in a note.

Nevertheless, on 2 April, the Opec nations, comprised of the Gulf states and Russia, sent oil prices to a near one-month high with a surprise move to lower crude production by 1.6m bbl/day in total, lifting expectations of market tightness. 

“This has been exacerbated by other short-term issues, including interruptions to pipeline supplies from Iraqi Kurdistan. Last week also saw the first evidence emerge of weaker flows from Russia,” said Australian bank ANZ.

“While the flat price and time spreads have strengthened on the back of expectations of a tighter market, demand concerns clearly remain,” said ING bank in a note. 

“Weaker refinery margins remain a feature, with the weakness predominantly driven by middle distillates.”

US data

In terms of wider economic news, though US March retail sales figures released on Friday were down 1% from the prior month, ANZ pointed to a strong private consumer demand last quarter, as well as an increase in preliminary University of Michigan consumer confidence for April.

“A solid advance Q1 GDP release now seems likely,” the bank said. “Our baseline view is for two more 25bp [basis point] rate hikes (from the US Federal Reserve) and we expect that if data does not start to weaken soon, the market will need to reprice for no rate cuts in the second half.”

On Friday, the International Energy Agency said it expected world oil demand to hit a record 101.9m bbl/day this year, with oil market balances remaining tight in the second half of the year.