Crude oil traded down last week, says Ole Hansen, Director of commodities strategy, Saxo Bank.

In general, it seems that both WTI and Brent crude oil continue to stabilize at relatively limited intervals around $55/ barrel and $60/ b, respectively. The global outlook for demand remains difficult, with the current feeling of decline not being helped by an IMF slowdown of estimates in global growth and the uncertainty surrounding US-China trade negotiations. Given the current outlook for demand, Opec and Russia may be forced to maintain and may even reduce production even further in 2020. Whether this can be achieved or not will most likely be a constraint for the market to recover too soon, excluding a geopolitical event that may recur.

President Putin’s visit to the Middle East last week further cemented the growing cooperation between Russia, Saudi Arabia and its GCC (Gulf Cooperation Council) allies. A process that actually started at the beginning of 2017 with the agreement to reduce oil production to stabilize the price. Most likely, Russia will also use the opportunity provided by Donald Trump’s increasingly unpredictable behavior when it comes to foreign policy decisions.

What diminishes, perhaps, the need for action by Opec+ is that the growth of shale oil production in the US has slowed down in 2019 and seems to slow further in the coming years. Lower oil prices and the fact that investors are increasingly looking to make a profit, not a rapid increase, have led to an almost continuous reduction in the weekly number of drilling since November last year. The XLE ETF, which tracks the performance of US oil and natural gas producers, has underperformed the S&P 500 by nearly 20% so far this year. It is a sign of lower investor confidence, one that can hinder future growth through lack of investment.