Oil rises on OPEC-led supply cuts, report of falling US crude inventories

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Reuters

KEY POINTS
  • Both international Brent and U.S. crude futures gained.
  • U.S. crude oil inventories fell by 4.2 million barrels in the week to Feb. 22, to 444.3 million barrels, the American Petroleum Institute (API) estimated in a weekly report on Tuesday.
  • Meanwhile, OPEC has indicated it will continue to withhold supply despite pressure from U.S. President Donald Trump this week to stop artificially tightening markets.
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Jean-Paul Pelissier | Reuters

Oil prices rose on Wednesday after a report of declining crude inventories in the country and as producer club OPEC seemed to stick to its supply cuts despite pressure from U.S. President Donald Trump.

U.S. West Texas Intermediate (WTI) crude oil futures were at $56.02 per barrel at 0100 GMT, up 52 cents, or 0.9 percent, from their last settlement.

International Brent crude futures were at $65.55 per barrel, up 34 cents, or 0.5 percent from their last close.

U.S. crude oil inventories fell by 4.2 million barrels in the week to Feb. 22, to 444.3 million barrels, the American Petroleum Institute (API) estimated in a weekly report on Tuesday.

Official data will be released by the U.S. Energy Information Administration (EIA) after 1800 GMT.

Oil markets have generally received support this year from supply curbs by the Organization of the Petroleum Exporting Countries (OPEC), which together with some non-affiliated producers like Russia, known as OPEC+, agreed late last year to cut output by 1.2 million barrels per day (bpd) to prop up prices.

And the group has indicated it will continue to withhold supply despite pressure from U.S. President Donald Trump this week to stop artificially tightening markets.

“Crude oil has been rising lately, not due to strong growth and rising demand but primarily due to a politically orchestrated cut in production from OPEC and friends,” said Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank.

Despite this, oil remains in ample supply as U.S. crude oil production has risen by more than 2 million bpd over the past year, to a record 12 million bpd, and because demand growth is low because of a global economic slowdown and improving energy efficiency across industries.

“The OPEC+ production cuts have … so far failed to create the tightness needed to support a continued rally,” Hansen said.

Oil prices fall as US crude output hits record

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Reuters
KEY POINTS
  • Both international Brent and U.S. crude futures slipped.
  • U.S. crude oil production reached 12 million bpd for the first time last week, the Energy Information Administration (EIA) said on Thursday in a weekly report.
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Andrew Burton | Getty Images

Oil prices fell on Friday after the United States reported its crude output hit a record 12 million barrels per day (bpd), undermining efforts by Middle East-dominated producer club OPEC to withhold supply and tighten global markets.

International Brent crude futures were at $66.87 per barrel at 0326 GMT, down 20 cents, or 0.3 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude oil futures were at $56.84 per barrel, down 12 cents, or 0.2 percent, from their last settlement.

U.S. crude oil production reached 12 million bpd for the first time last week, the Energy Information Administration (EIA) said on Thursday in a weekly report.

That means U.S. crude output has soared by almost 2.5 million bpd since the start of 2018, and by a whopping 5 million bpd since 2013. America is the only country to ever reach 12 million bpd of production.

As output surges, U.S. oil stocks are also rising.

U.S. commercial crude oil inventories rose by 3.7 million barrels to 454.5 million barrels in the week ended Feb. 15, the EIA said.

Analysts say U.S. output will rise further and that oil firms will export more oil to sell off surplus stocks.

“We see total U.S. crude production hitting 13 million bpd by year-end, with 2019 averaging 12.5 million bpd,” U.S. bank Citi said following the release of the EIA report.

Of that, the bank said, “we could be seeing some weeks with 4.6 million bpd of gross crude exports by end-year, adding to this week’s new record” of 3.6 million bpd.

Friday’s dips at least temporarily halted a rally that pushed crude prices this week to their highest for 2019 so far amid the supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC).

OPEC and some non-affiliated producers such as Russia agreed late last year to cut output by 1.2 million bpd to prevent a large supply overhang from growing.

Another recent price driver has been U.S. sanctions against oil exporters Iran and Venezuela.

Oil near 2019 highs amid OPEC cuts, but economic slowdown applies brakes

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  • Both international Brent and U.S. crude futures were higher.
  • Analysts said that a global economic slowdown was preventing prices from surging beyond the 2019 highs seen this week.

A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.

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A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.

Oil prices hovered close to 2019 highs on Thursday, bolstered by OPEC-led supply cuts and U.S. sanctions on Venezuela and Iran, but were prevented from rising further by slowing growth in the global economy.

U.S. West Texas Intermediate (WTI) crude oil futures were at $57.33 per barrel at 0256 GMT, 17 cents, or 0.3 percent, above their last settlement, but below their 2019 high of $57.55 reached the previous day.

International Brent crude futures were at $67.14 per barrel, 6 cents above their last close and not far off their 2019 peak, hit the day before, of $67.38 per barrel.

Analysts said that a global economic slowdown was preventing prices from surging beyond the 2019 highs seen this week.

“Slowing economic growth will invariably lead to weakness in fuel consumption thus eroding bullish gains for oil prices,” said Benjamin Lu of brokerage Phillip Futures in Singapore.

Despite the slowdown in economic growth that emerged in late 2018, oil prices have been driven up this year by supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC).

OPEC, as well as some non-affiliated producers such as Russia, agreed late last year to cut output by 1.2 million barrels per day (bpd) to prevent a large supply overhang from growing.

Another price driver has been U.S. sanctions against oil exporters Iran and Venezuela.

“Although there is no lack of resources, there is an increasing lack of access to them,” Britain’s Barclays bank said of the sanctions on Wednesday.

The main factor keeping oil prices from rising even further is soaring U.S. oil production, which rose by more than 2 million bpd last year, to a record 11.9 million bpd.

The swelling output has resulted in rising U.S. oil inventories.

U.S. crude oil stocks rose by 1.3 million barrels in the week to Feb. 15 to 448.5 million, according to a weekly report by the American Petroleum Institute on Wednesday.

Official oil inventory and production data is due to be published by the U.S. Energy Information Administration (EIA) after 1800 GMT on Thursday.

Oil near 2019 highs amid OPEC cuts, US sanctions

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  • U.S. crude futures hit 2019 highs shortly after 0300 GMT on Wednesday, up 30 cents.
  • International benchmark Brent crude futures also gained and hovered close to their 2019 high hit on Monday.

Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Spencer Platt | Getty Images
Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Oil prices were around 2019 highs on Wednesday, propped up by supply cuts led by producer club OPEC and by U.S. sanctions on Iran and Venezuela.

But soaring U.S. production and expectations of an economic slowdown look set to cap prices, analysts said.

U.S. West Texas Intermediate (WTI) crude oil futures hit 2019 highs of $56.39 per barrel shortly after 0300 GMT on Wednesday, up 30 cents, or 0.5 percent, from their last settlement.

International Brent crude futures were at $66.58 per barrel, up 13 cents, or 0.2 percent, from their last close and not far off their 2019 high of $66.83 per barrel from Monday.

Oil prices have been supported by supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC).

OPEC-member and top crude exporter Saudi Arabia is expected to reduce shipments of light crude oil to Asia in March as part of the effort to tighten markets.

OPEC as well as some non-affiliated producers such as Russia agreed late last year to cut output by 1.2 million barrels per day (bpd) to prevent a large supply overhang from swelling.

“We have lowered Saudi crude oil output in line with announcements … (and) are now assuming that Saudi Arabia will produce in the first three quarters of 2019 less than the 10.31 million bpd target it agreed to at the Dec. 7 OPEC, non-OPEC meeting,” French bank BNP Paribas said in a note.

Because of the cuts, BNP said it expected oil prices “to rally through Q3 2019”, with Brent to average $73 per barrel by then and WTI to average $66.

Another key oil price driver has been U.S. sanctions on oil exporters Iran and Venezuela.

Despite the sanctions, Iran’s crude exports were higher than expected in January, averaging around 1.25 million bpd, according to Refinitiv ship tracking data. Many analysts had expected Iran oil exports to drop below 1 million bpd after the imposition of U.S. sanctions last November.

Shale boom, weaker economy

Standing against the supply cuts and sanctions is U.S. crude output, which soared by more than 2 million bpd in 2018 to a record 11.9 million bpd, thanks to booming shale oil production, which the Energy Information Administration on Tuesday said was expected to keep rising.

BNP Paribas said surging U.S. output would feed into lower oil prices towards the end of the year, with Brent to dip to an average of $67 a barrel by the fourth quarter and WTI to average $61.

“U.S. oil production growth, driven by shale, will be increasingly exported in greater volumes to international markets while the global economy is expected to witness a synchronised slowdown in growth,” the bank said.

Oil rises 1 percent on deepening OPEC supply cuts, sanctions on Venezuela

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  • Both international Brent and U.S. crude futures saw gains.
  • The Organization of the Petroleum Exporting Countries (OPEC), which Saudi Arabia de-facto leads as the world’s top crude oil exporter, said on Tuesday that it had cut its output by almost 800,000 bpd in January to 30.81 million bpd.
  • Supply issues in OPEC-member Venezuela are also bolstering oil prices as the South American country suffers a political and economic crisis, with Washington introducing petroleum export sanctions against state-owned energy firm PDVSA.

Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Spencer Platt | Getty Images
Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Oil prices rose on Wednesday as producer club OPEC said it had cut supply deeply in January and as U.S. sanctions hit Venezuela’s oil exports.

U.S. West Texas Intermediate (WTI) crude oil futures were at $53.70 per barrel at 0344 GMT, up 60 cents, or 1.1 percent, from their last close.

International Brent crude futures were up 1.1 percent, or 69 cents, at $63.11 per barrel.

Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore, said oil prices were boosted after “Saudi Arabia announced it was cutting daily production and exports by a further 500,000 barrels per day (bpd) on top of its agreed OPEC quota cut”.

The Organization of the Petroleum Exporting Countries (OPEC), which Saudi Arabia de-facto leads as the world’s top crude oil exporter, said on Tuesday that it had cut its output by almost 800,000 bpd in January to 30.81 million bpd.

Supply issues in OPEC-member Venezuela are also bolstering oil prices as the South American country suffers a political and economic crisis, with Washington introducing petroleum export sanctions against state-owned energy firm PDVSA.

Despite the political rifts between Venezuela and the United States, U.S. refiners have in the past been some of the biggest buyers of Venezuelan crude.

These customers have fallen away after Washington imposed sanctions earlier this year.

“With so far no sign of change in government, we see increasing risks that production losses could be larger and sooner than our forecast for a 0.33 million-bpd supply loss in 2019,” U.S. bank Goldman Sachs said in a note on Wednesday.

Venezuela has tried to find alternative customers, especially in Asia, but under U.S. pressure many buyers there are also shying away from dealing with PDVSA.

“Oil production is rapidly falling and companies that normally resell Venezuelan crude have not found ways to mitigate the effect of the U.S. sanctions,” Barclays bank said.

Weakening demand

Despite the OPEC cuts and crisis in Venezuela, analysts said global oil markets remain well supplied.

“Oil markets continue to focus at the macro level on the dual notions of adequate supply and softening demand,” Frank Verrastro, senior vice president for the Energy and National Security Program at the Center for Strategic and International Studies (CSIS), a U.S. think-tank, said in a note.

He added that markets were amply supplied due to “adequate global oil inventories, the prospect of weakened demand tied both to U.S.-China trade and broader economic concerns, the approach of seasonal refinery maintenance – when crude oil demand declines – and an influx of new supply from the United States and elsewhere”.

Most new supply is coming from the United States, where crude production <C-OUT-T-EIA> rose by more than 2 million bpd last year to a record 11.9 million bpd, making the country the world’s biggest oil producer ahead of Russia and Saudi Arabia.

And while OPEC and its allies, including Russia, withhold supply, U.S. output is expected to rise further, with the Energy Information Administration saying on Tuesday that U.S. crude production is expected to reach 13.2 million bpd by 2020.