Published: Thu, December 27, 2018
Money | By Bruce West

United States oil prices extend gains as equities rise, but economic worries weigh

United States oil prices extend gains as equities rise, but economic worries weigh

Oil surged on Wednesday, posting its strongest daily gain in more than two years in a partial rebound from steep losses that pushed crude benchmarks to lows not seen since 2017.

Futures in NY rose 8.7 percent on Wednesday, the biggest increase since November 2016, amid thin post-holiday trading volume. It was unclear whether follow-through buying would push prices higher again once trading desks are more fully staffed after the new year begins.

Crude has been caught up in wider financial market weakness as the US government shutdown, higher US interest rates and the US-China trade dispute unnerved investors and exacerbated worries over global growth. The sell-off "doesn't signal strength of confidence in demand, but we still went too far too quick".

The US dollar index was modestly higher as well, after the currency hit fresh lows before Christmas. United States crude was up gained $1.79, or 4.2pc, to $44.31.

Brent fell 11 per cent last week and hit its lowest since September 2017, while U.S. futures slid to their lowest since July 2017, bringing the decline in the two contracts to 35 per cent so far this quarter.

The IG Client Sentiment Report still shows83.1% of traders are still net-long crude compared to 85.9% last week, with the ratio of traders long to short at 4.91 to 1.

Meanwhile, the USA administration is struggling to contain the market turmoil, which intensified in the wake of a Bloomberg News report that Donald Trump had discussed firing Powell.

Trade was thin due to the Christmas holidays.

Recent selling "has felt less fundamentally driven and more a function of the overall market meltdown as increased equity volatility and growing macro concerns have weighed on a number of asset classes", wrote analysts at Tudor, Pickering & Holt. It was also the largest one-day price move and percentage gain since November 30, 2016, though even the sharp rally still leaves the contract down over 7% for December to date. "Oil prices could rise if Opec+ make announcements about specific measures" including additional cuts, Yoshida said.

But, he added, economic worries will continue to weigh unless OPEC reassures the market as to the viability of the supply cuts and "even imposes deeper ones as some members have suggested".

OPEC and other major oil producers negotiated to cut oil production by nearly 1.2 million barrel a day, in the first week of December.

Reuters reported that Saudi Aramco signed five crude supply agreements that will take its 2019 contract totals with Chinese buyers to 1.67 million bpd.

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