Oil sinks below $50 on output cut doubts

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LONDON: New York oil sank to under $50 on Thursday owing to doubts over an OPEC output cut, while most stocks rose as the Federal Reserve hinted at a softer pace of interest rate hikes.

Investors, meanwhile, remained wary about the weekend’s crunch trade talks between US President Donald Trump and Chinese counterpart Xi Jinping at the G20 summit in Buenos Aires.

The pound fell versus the dollar and euro one day after the UK government and the Bank of England painted a bleak picture of the country’s economic future following Brexit.

Milan’s stocks index was one of the few falling into negative territory on lingering concerns over Rome’s budget deficit.

New York’s West Texas Intermediate (WTI) crude, one of the world’s major oil contracts, slumped in morning deals to strike a near 14-month low at $49.41 per barrel.

European benchmark London Brent North Sea oil dived to $57.50, a level last seen in early October 2017.

Traders remain uncertain about whether the Organisation of Petroleum Exporting Countries and non-OPEC producers like Russia will agree to curb output at their Vienna gatherings next week.

“The oil market is clearly not 100 per cent convinced that the OPEC+ will cut supplies next week, but the pressure is certainly building as prices continue to fall amid ongoing concerns over excessive supply and lower demand growth,” Forex.com analyst Fawad Razaqzada told AFP.

“With WTI hovering around the $50 mark, it has given up more than 50 per cent of its gains made since hitting a low in 2016.

“This represents a significant drop for a healthy market, which makes intervention from the OPEC+ group even more likely,” Razaqzada added.

However on Thursday, Saudi Arabia’s Energy Minister Khalid al-Falih and Russian leader Vladimir Putin both appeared to dent hopes of a deal.

“Comments by… al-Falih and Russian President Putin gave rise to doubts that the OPEC+ group will be able to agree on a sufficiently comprehensive production cut when it meets in Vienna,” said Commerzbank analysts in a note to clients.

“Al-Falih made it clear that Saudi Arabia would not reduce production alone. Saudi Arabia, in particular, had recently stepped up its production hugely and was, therefore, chiefly responsible for the oversupply.”

Commerzbank analysts also noted that Putin indicated that key oil producer Russia is “absolutely fine” with an oil price at $60.

Oil had spiked to four-year peaks in October after OPEC and other global producers had snubbed pressure from Trump to lift output and dampen the market.

Prices have since tumbled, however, on rising production, Chinese growth fears and easing concerns about the impact of sanctions on Iran.

Wall Street markets soared on Wednesday after Federal Reserve chief Jerome Powell said borrowing costs were still historically low but only “just below” the neutral level, a rate that neither stimulates nor restrains the economy.

The positivity spilled over into most of Asia and Europe on Thursday.

While the US central bank is widely expected to lift rates, Powell’s comment was a far cry from his characterisation last month of them being “a long way from neutral”.

The fear of higher US interest rates — fuelled by a surging economy — had been a key driver of a global equity sell-off over the past few months, while boosting the dollar.

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