Oil prices steady on supply optimism but economic slowdown concerns loom

Oil prices steadied on Wednesday after climbing about 3 percent in the previous session on expectations that OPEC-led production cuts will tighten supply and that possible Chinese stimulus might help the global economy.

Brent crude oil futures were at $60.70 per barrel at 0940 GMT, up 6 cents or 0.1 per cent.

West Texas Intermediate crude futures were down 7 cents, or 0.13 per cent, at $52.04 a barrel.

"It seems the oil market is looking at Saudi Arabia's aggressive supply cuts and Chinese aggressive stimulus," said Jonathan Barratt, chief investment officer at Probis Securities in Sydney.

China's central bank on Wednesday made its biggest daily net cash injection via reverse repo operations on record.

 

Markets took the announcement as evidence that authorities are shifting to a policy of easing to counter a slowdown in the world's second-biggest economy.

On Tuesday, China's National Development and Reform Commission signalled it might roll out more fiscal stimulus.

"Prices climbed very much in line with global stock markets, which received some support from indications by Chinese officials that Beijing is considering an economic stimulus package," consultancy JBC Energy said.

But mounting signs of an economic slowdown in China and across the globe may yet keep oil prices in check.

Earlier this week, China reported poor December trade data, with exports and imports contracting from a year earlier.

White House estimates showed on Tuesday that the U.S. economy is taking a larger-than-expected hit from a partial government shutdown.

The outlook for the global economy darkened further after Britain's parliament on Tuesday shot down Prime Minister Theresa May's deal to leave the European Union.

OPEC CUTS SUPPORT CRUDE

Fundamentally, oil markets are receiving support from supply cuts by the Organization of the Petroleum Exporting Countries, including top exporter Saudi Arabia, and major non-OPEC producer Russia.

"OPEC production cuts will limit inventory builds to those justified by higher demand, which should settle the market in a sustainable range above $70 per barrel," Standard Chartered bank said.

However, surging U.S. crude production, which hit a record 11.7 million barrels per day late last year, threatens to undermine the OPEC-led efforts.