Oil prices rallied on the first trading day of 2019 as U.S. equities recovered from early losses and amid signs that Middle Eastern producers were fulfilling a pledge to cut exports.
Futures picked up where they had left off in a volatile 2018, with global benchmark Brent crude climbing 5 percent to top $56 a barrel in a mid-morning surge. West Texas Intermediate oil jumped as well, erasing earlier losses brought on by disappointing manufacturing data out of China. The S&P 500 Index was little changed, reversing an early 1.6 percent drop.
Although the Organization of Petroleum Exporting Countries and its allies have pledged substantial output curbs to prevent an oil surplus from forming this year, investors’ skepticism helped drive prices to an almost 40 percent decline to end 2018. Traders worry any cutbacks won’t be deep enough to make way for booming supplies from Texas and other states driving the U.S. shale revolution.
“We’ve seen a couple of times where the market’s attempted to pick itself up and it seems the selling pressure always returns,” said Gene McGillian, market research manager at Tradition Energy in Stamford, Connecticut. “Until we see more evidence that fundamentals in the market are not as weak as some think, I think we’re going to keep feeling that pressure.”
Crude exports from Saudi Arabia fell by a half-million barrels a day in December, led by lower flows to the U.S. and China, according to tanker tracking data compiled by Bloomberg, and the United Arab Emirates showed a decline as well. While the numbers are preliminary and could also reflect slowing demand, traders have been looking for signs that OPEC and its allies will follow through on plans to restrict global supplies.
“It looks like they are very much targeting inventory in the U.S., as that affects the high-frequency data that moves traders in or out of the oil market,” said Bart Melek, head commodity strategist at TD Securities in Toronto.
West Texas Intermediate for February gained $1.60 to $47.01 a barrel on the New York Mercantile Exchange at 11:45 a.m. local time, recouping an earlier fall to near $44. Total volume traded Wednesday was about 29 percent above the 100-day average.
Brent for March settlement rose $1.75 to $55.55 a barrel on the London-based ICE Futures Europe exchange, and traded at an $8.22 premium to WTI for the same month.
While President Donald Trump made positive noises about reaching a trade deal with his Chinese counterpart Xi Jinping over the weekend, the Chinese data — and similar readings from across Asia — are a stark example that the protectionist showdown is starting to have an impact on economic activity.
Trump, meanwhile, kept up his campaign to push prices down, boasting in a tweet Tuesday about low gasoline prices that he likened to a tax cut for consumers. He also signaled he wants to “ make a deal” to break a stalemate that’s had part of the U.S. government shut for 11 days.
Other oil-market news: Gasoline prices rose 4.4 percent to $1.3599 a gallon in New York trading. OPEC oil output declined by 825,000 barrels a day in December and is set to drop 870,000 barrels a day in January, consultant JBC Energy wrote in a report.