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The Opec headquarters in Vienna. Opec’s meeting comes against a background of ample global crude supplies, according to both the group and International Energy Agency. Image Credit: AFP

Abu Dhabi: Further output cuts by Opec could be in the offing in the face of weekly slides in oil prices as a result of US-China trade tensions, analysts said.

Oil prices saw another overall fall in prices last week, with Brent closing at $58.53 and West Texas Intermediate on $54.50, down 5.4 per cent and 2 per cent respectively. The downward trend in prices saw reports emerging saying that Saudi Arabia was contacting other Opec producers to discuss how to stop the slide in prices, with Friday’s oil prices going up slightly on speculation of a possible new round in output cuts.

“The oil market is hugely volatile and dynamic at the moment with the main factor in the driving seat being the concern about a trade war with the US and China,” said Edward Bell, commodity analyst, Global Markets and Treasury, Emirates NBD. “We have a few weeks to go before this new higher tariff rate comes in covering pretty much all goods between China and the US, which could lead to slower economic growth and Chinese retaliation,” he added.

Bell said Opec’s response could come in the form of either further output cuts or putting pressure on producers to abide by their output cut agreements.

“There has been news of Saudi Arabia trying to bring other producers to try and take action. The measures that are available to them is to decrease production or to encourage others to hit their targets that were agreed to in previous output cuts. Beyond that there is very little much else that can be done.”

Bjørnar Tonhaugen, chief oil market analyst at Rystad Energy, said that oil demand could go down by 100,000-200,000 bpd should Trump’s new tariffs come into effect in September.

“Trump’s new round of tariffs points now even more substantial downside risk to our demand outlook and will likely worsen third quarter 2019 and fourth quarter 2019 balances by 100,000 bpd and 200,000 bpd respectively as demand growth won’t likely recover to 1.3-1.4 million bpd in 2H 19 as previously anticipated.”

Tonhaugen also added that global demand for oil could offset positive news such as weekly falls in US rig counts, which fell again on Friday down from 770 to 764.

“We believe that over the coming the four weeks, we will see continued draws in US crude oil inventories to the tune of around 5 million barrels per week, which is larger than the normal seasonal draws for this time of year.

“The larger draws we expect are driven by higher seasonal crude demand and low net imports of crude. If these stock draws occur, they might support crude prices in the coming weeks,” he added.

“However, concerns about the outlook for global demand in the market could turn out to outweigh this short term positive effect on crude prices,” he said.

Tonhaugen’s assessment was backed by the International Energy Agency’s (IEA) monthly report on Friday, which also cut back on its own outlook for global oil demand in 2019 and 2020.

“Growth estimates for 2019 and 2020 have been revised down by 0.1 bpd to 1.1 bpd and 1.3 bpd, respectively,” the IEA said.

“There have been minor upward revisions to baseline data for 2018 and 2019 but our total number for 2019 demand is unchanged at 100.4 bpd, incorporating a modest upgrade to our estimate for 1Q19 offset by a decrease for 3Q19. The outlook is fragile with a greater likelihood of a downward revision than an upward one,” the report added.