Oil prices fall as poor US factory data offset tighter supply

Oil prices fell in choppy trade on Tuesday, after data showing a decline in U.S. factory orders dragged benchmark futures down from 2019 highs in the previous session.

Despite the slide, investors expect U.S. sanctions on Venezuela and production cuts led by OPEC to head off a glut this year, buoying prices.

U.S. West Texas Intermediate futures were down 71 cents, or 1.3 percent, at $53.85 per barrel around 12:20 p.m. ET (1620 GMT), after earlier falling more than 1 percent to $53.62. WTI touched its highest in more than two months at $55.75 on Monday.

International Brent crude futures were down 30 cents at $62.21 a barrel, bouncing from a session low at $61.72 and off Monday's two-month high of $63.63.

Trading proceeded at lower volumes in parts of East Asia due to the Lunar New Year holiday.

"Disappointing U.S. factory data sparked fresh concerns over a slowdown in the global economy, although losses were limited as OPEC cuts and U.S. sanctions on Venezuela continued to point to a tighter supply picture," Cantor Fitzgerald Europe said.

The Organization of the Petroleum Exporting Countries and its allies, including Russia, agreed to production cuts effective this month to forestall an overhang.

The oil industry generally believes the curbs will help balance the market in 2019.

"You'll see OPEC disciplined and therefore prices look fairly robust around where they are", BP CFO Brian Gilvary told Reuters, adding that he expected demand growth of 1.3 to 1.4 million bpd in 2019 -- similar to 2018.

Analysts said U.S. sanctions on Venezuela had focused market attention on tighter global supplies.

"Fresh U.S. sanctions on the country could see 0.5-1 percent of global supply curtailed," said Vivek Dhar, mining and energy analyst at Commonwealth Bank of Australia.

The sanctions will sharply limit oil transactions between Venezuela and other countries and are similar to, but slightly less extensive than, those imposed on Iran last year, experts said on Friday, after looking at details posted by the Treasury Department.

Meanwhile, a Reuters survey found that supply from OPEC states had fallen the most in two years, as Saudi Arabia and its Gulf Arab allies over-delivered on pledged cuts, while Iran, Libya and Venezuela registered involuntary declines.

But weighing on markets, U.S. government data showed new orders for U.S.-made goods unexpectedly fell in November, with sharp declines in demand for machinery and electrical equipment.

The global economic outlook and prospects for growth in fuel demand have been clouded by poor economic data in China and U.S.-China trade tensions.

U.S. President Donald Trump last week said he would meet his Chinese counterpart Xi Jinping in coming weeks to try to settle the two countries' dispute.

SOURCE: https://www.cnbc.com/2019/02/05/oil-markets-us-sanctions-on-venezuela-and-opec-in-focus.html