Oil rises as OPEC output cuts look set to continue while US drilling activity slumps

CNBC

Reuters

KEY POINTS
  • U.S. West Texas Intermediate (WTI) crude oil futures were at $56.39 per barrel at 0323 GMT GMT, up 32 cents, or 0.6 percent from their last close.
  • Brent crude futures were at $65.04 per barrel, up 30 cents, or 0.5 percent.
  • This comes after Saudi oil minister Khalid al-Falih said an end to OPEC-led supply cuts was unlikely before June, while a report showed U.S. drilling activity fell for a third straight week.
Reusable: Oil pump jack leased by Devon Energy 150922
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.
Nick Oxford | Reuters

Oil prices rose on Monday, lifted by comments from Saudi oil minister Khalid al-Falih that an end to OPEC-led supply cuts was unlikely before June and a report showing a fall U.S. drilling activity.

U.S. West Texas Intermediate (WTI) crude oil futures were at $56.39 per barrel at 0323 GMT GMT, up 32 cents, or 0.6 percent from their last close.

Brent crude futures were at $65.04 per barrel, up 30 cents, or 0.5 percent.

Despite the gains, markets were somewhat held back after U.S. employment data raised concerns that an economic slowdown in Asia and Europe was spilling into the United States, where growth has so far still been healthy.

“Downward revisions in global growth forecasts by OECD and ECB have capped bullish gains,” said Benjamin Lu of Singapore-based brokerage Phillip Futures.

Oil markets have generally been supported this year by ongoing supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) and some non-affiliated allies like Russia — known as the OPEC+ alliance.

OPEC+ has pledged to cut 1.2 million barrels per day (bpd) in crude supply since the start of the year to tighten markets and prop up prices.

The group will meet in Vienna on April 17-18, with another gathering scheduled for June 25-26, to discuss supply policy.

Saudi oil minister Khalid al-Falih told Reuters on Sunday it would be too early to change OPEC+ output policy at the group’s meeting in April.

“We will see what happens by April, if there is any unforeseen disruption somewhere else, but barring this I think we will just be kicking the can forward,” Falih said.

Prices were also supported by U.S. energy services firm Baker Hughes’ latest weekly report showing the number of rigs drilling for new oil production in the United States fell by nine to 834.

High drilling activity last year resulted in a more than 2 million bpd rise in production, to 12.1 million bpd reached this February, making the United States the world’s biggest producer of crude oil ahead of Russia and Saudi Arabia.

The slowdown in drilling points to more timid output growth going forward, but because the overall drilling level remains relatively high despite the recent decline, many analysts still expect U.S. crude output to rise above 13 million bpd soon.

“This is the third straight week of decline…after a number of oil producers trimmed their spending outlooks for 2019,” ANZ bank said on Monday.