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OPEC+ decision to extend output cut should at least act as floor under oil price

Despite a swathe of news that should have been positive, commodity prices struggled to make gains this week as concerns about global growth continue to weigh on sentiment,Trendreports citing UK-based Capital Economics research and consulting company.

‘Even the strong US employment data on Friday failed to lift the mood, although it did prompt a sharp drop in precious metals prices. While we think that slower global growth will indeed depress oil consumption this year, the decision by OPEC+ to extend its 1.2m bpd output cut for another nine months should at least act as a floor under the oil price,’ said the company.

That said, Capital Economics expects that weaker economic growth will reduce oil demand growth and ensure that the oil market moves into a surplus by end-2019 (3), weighing on prices.

‘Next week is relatively quiet on the data front. China is set to publish its June trade figures on Friday. We suspect that commodity import volumes were weak given that survey data showed a slowdown in activity last month. High level trade talks between the US and China are also set to resume next week, but we are sceptical that there will be a significant breakthrough, which could have negative implications for prices,’ reads the report.

‘Despite lower oil prices, the spot price of Asian LNG rose, probably because ongoing hot weather in Asia is increasing demand for energy for air conditioning. However, the bigger picture is that constant oversupply, due to the boom in exports from countries, particularly the US (4), will continue to dampen the price of LNG for the remainder of this year. Indeed, we expect the average annual LNG price to be lower this year than last.’
Source: Trend

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