oil refinery in Haradh, Saudi Arabia
A refinery in Haradh, Saudi Arabia. Image Credit: AFP

Abu Dhabi: Output cuts by Opec and its allies as well as tensions between Saudi Arabia and Iran following attacks on the kingdom’s oil installations and oil tankers is expected to support oil prices, analysts said.

Oil prices trended lower last week due to concerns pertaining to growth following the escalation of tensions between China and the US on trade related issues.

International benchmark Brent was trading at $68.69 per barrel when markets closed on Friday. Brent saw a decline of 4.5 per cent last week, the biggest weekly drop of the year pressured by rising inventories and worries about the global economy. West Texas Intermediate was at $58.63 per barrel.

“Middle East tensions and the Opec+ group of producers maintaining and potentially extending current production cuts have supported the flat price of oil. This despite concerns about slowing demand growth as the negative impact on the global economy of the US-China trade war continues to spread,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Opec and its allies including Russia are currently cutting production by about 1.2 million barrels per day to boost oil prices and Saudi oil minister Khalid Al Falih last week indicated that oil producing countries are likely to extend the output agreement till the end of 2019.

Oil jumped to more than $71 per barrel earlier this month due to rising tensions in the Middle East following attacks on Saudi Arabia’s oil installations and oil tankers off the coast of the UAE earlier this month.

Regarding the recent escalation of tensions in the Middle East, Hansen said the risk of it leading to an armed conflict and a subsequent spike in crude oil prices is very unlikely.

“With President Trump often measuring his success on low gasoline prices and high stock market valuations, a war with Iran does not make any political sense with an election to be fought in 2020.

“However, with the global economy showing further signs of cooling as the impact of the US — China trade war begins to be felt outside of Asia, the risk is that slowing demand growth eventually will overtake the risk of lower supply.”