Oil Prices Follow Stock Markets Lower

Oil prices followed global stock markets lower Thursday, after U.S.-North Korea nuclear talks ended without a deal. Crude prices also came under pressure from weak Chinese manufacturing data.

–Brent crude, the global oil benchmark, fell by 0.8% to $66.03 a barrel on London’s Intercontinental Exchange.

–West Texas Intermediate futures, the U.S. oil standard, were down 0.7% at $56.56 a barrel on the New York Mercantile Exchange.

HIGHLIGHTS

Equity Weakness: Global stocks fell after U.S.-North Korean nuclear talks in Vietnam were unexpectedly halted and President Trump walked away without an agreement to curb Pyongyang’s nuclear-weapons programs.

“The weakness in stocks that we’ve seen after failed talks between the U.S. and North Korea” is pulling the oil complex lower this morning, said Ole Hansen, head of commodity strategy at Saxo Bank.

South Korean assets dropped on the news and U.S. stock-index futures also slipped. The S&P 500 and the Dow Jones Industrial Average were on course to open 0.4% lower, and the Nasdaq-100 was on track to fall 0.5%.

China Data: At the same time, Mr. Hansen said “weaker-than-expected” manufacturing data out of China, the world’s largest consumer of oil, was weighing on crude prices Thursday.

China’s official purchasing managers index fell to 49.2 in February, down from 49.5 in January, showing a third consecutive month of contraction and underscoring the continuing slowdown in the world’s second-largest economy.

U.S. Inventories: Oil prices were bolstered Wednesday by bullish U.S. inventory data. The Energy Information Administration reported an 8.6 million barrel drop in crude oil stockpiles last week.

“The key driver behind this was a significant drop in crude oil imports, ” said Warren Patterson, head of commodities strategy at ING Bank. “The Saudis appear committed to reducing flows to the U.S.”

INSIGHT

OPEC+: Oil prices continue to gain support from signs the Organization of the Petroleum Exporting Countries and its partner producers are holding back crude production to rebalance a market that had become oversupplied.

OPEC, de facto led by Saudi Arabia, and 10 producers outside the oil-cartel, led by Russia, agreed late in 2018 to collectively hold back output by 1.2 million barrels a day for the first half of 2019. The move has helped to boost prices by roughly 20%, after the market plummeted by around 40% in the fourth quarter of 2018.

Saudi Energy Minister Khalid al-Falih reaffirmed Wednesday the Saudi commitment to OPEC production cuts, pushing back against pressure from President Trump for the cartel to raise production and lower prices. Saudi Arabia, the world’s largest exporter of crude, is shouldering the bulk of the curbs.

AHEAD

–International Petroleum Week wraps up in London today.

–Baker Hughes releases weekly data Friday on the number of rigs drilling for oil in the U.S.
Source: Dow Jones