Oil drops on concerns of economic downturn, but OPEC cuts support

Oil prices reverse course and trade sharply higher

Oil prices surge 5%

The Saudis have used the price-boosting strategy in the past to shrink US stockpiles, the most transparent and closely-watched inventories in the world. Oil production has been at or near record highs in all three countries.

Global benchmark Brent crude rose, fell and then rebounded on Thursday, ending the trading session up 1.9%. The benchmark crude was at $57.27 a barrel at 1:47 p.m.in London.

Oil cargoes departing from OPEC nations to the United States fell to 1.63 million barrels per day (bpd) last month, down from 1.80 million bpd in November and 1.78 million bpd in October, the data show.

West Texas Intermediate for February delivery rose $1.04, or 2.2 percent, to $48.13 a barrel on the New York Mercantile Exchange.

Traders pointed to signs that Saudi Arabia is beginning to make good on vows to cut output.

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Considering the planned cuts versus ongoing increases in US crude production, which hit a record 11.7 million bpd by late 2018, FGE said it expected Brent prices to range between $55-$60 per barrel in the first months of 2019.

Figures from ClipperData have shown that loadings of Saudi crude on ships bound for the United States have been falling in recent months. "And you've got OPEC cutting".

According to John Kilduff, founding partner at energy hedge fund Again Capital, the "Saudis are trying to engineer a fall, if not plunge, in USA crude oil inventories to give the appearance of global tightness".

Oil prices rebounded shortly after WTI hit a session low at $44.35 a barrel and as the USA stock market reversed some of its earlier losses. "I think that's part of it", said Kilduff.

Others are not sitting idle, with Russian output reaching a record of more than 11 million bpd in 2018.

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"Jitters over the health of the global economy look set to endure but are being lost on the oil market, at least for the time being", said Stephen Brennock of oil broker PVM. "The current bearish bias will, therefore, continue in the near term and it stands to reason that oil will struggle to break out from its current trough".

A survey from the Institute for Supply Management on Thursday showed USA factory activity slowed more than expected in December, and leading economies in Asia and Europe have reported a fall in manufacturing activity.

The biggest problem that the market has to overcome is fears of a global economic slowdown and a drop in demand. 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. The kingdom's cutbacks reduced OPEC's overall output by 530,000 bpd last month, the group's sharpest pullback since January 2017.

In December, UAE Energy Minister Suhail al-Mazrouei, who also now serves as the president of OPEC, said both OPEC and non-OPEC members are ready to extend output cuts for another six months if the recent measures to boost the price of oil fail to boost the crude price.

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