Oil prices hit 2019 highs amid OPEC-led supply cuts and US sanctions

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  • International benchmark Brent crude futures touched 2019 highs.
  • The Organization of the Petroleum Exporting Countries (OPEC) and some non-affiliated suppliers including Russia are withholding supply in order to tighten the market and prop up prices.

Oil refinery and storage Australia

Jason Reed | Reuters

Brent crude oil prices hit 2019 highs above $65 per barrel on Friday, spurred by U.S. sanctions against Venezuela and Iran as well as OPEC-led supply cuts.

Brent rose as high as $65.10, pushing past the $65 mark for the first time this year, before edging back to $64.97 a barrel by 0450 GMT. That was still 0.6 percent above the last close.

The international benchmark for oil prices is at a near 3-month high and set for a 4.6 percent gain for the week.

U.S. West Texas Intermediate (WTI) crude futures were at $54.70 per barrel, up 29 cents, or 0.6 percent, from their last settlement.

The Organization of the Petroleum Exporting Countries (OPEC) and some non-affiliated suppliers including Russia are withholding supply in order to tighten the market and prop up prices.

The producer group known as OPEC+ has agreed to cut crude output by a joint 1.2 million barrels per day (bpd). Top exporter Saudi Arabia said it would cut even more in March than the deal called for.

Russia has cut its oil production by 80,000-90,000 barrels per day from its level in October, Moscow’s reference level for its cuts, the country’s energy minister said.

“Brent should average $70 per barrel in 2019, helped by voluntary (Saudi, Kuwait, UAE) and involuntary (Venezuela, Iran) declines in OPEC supply,” Bank of America Merrill Lynch said in a note.

It also expects “a 2.5 million barrels per day drop in OPEC supply from 4Q18 into 4Q19.”

Commodity investment firm Goehring & Rozencwajg (G&R) said that oil production from non-OPEC producers like Brazil, Mexico or the North Sea was also struggling, further tightening the market.

“The North Sea, Mexico and Brazil all disappointed and we expect this to continue going forward,” G&R said in a note published on Thursday.

Trade data in Refinitiv showed that combined crude oil shipments out of the North Sea, Mexico and Brazil were at 4.2 million bpd in January, down from 4.4 million bpd in December.

Standing against these declines is soaring U.S. crude production, which rose by more than 2 million bpd last year, to 11.9 million bpd, making America the world’s biggest oil producer.

Most analysts expect U.S. output to rise past 12 million bpd soon, and perhaps even hit 13 million bpd by the end of the year.

Rising U.S. shale oil supply, increasing spare capacity within OPEC and stagnating fuel consumption meant the medium-term oil price outlook was lower, BoAML said.

“We see growing downside risks to medium-term oil prices on rising U.S. supply and slower consumption,” the U.S. bank said. It expected Brent to range between $50 and $70 per barrel in the coming five years.

US crude settles 0.6% lower at $52.41 per barrel as slow progress in trade talks counters OPEC cuts

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Oil tanker

Jean-Paul Pelissier | Reuters

Oil prices fell on Monday as worries surrounding the resumption of U.S.-China trade talks overshadowed support from OPEC-led supply restraint.

Brent crude futures lost 63 cents, or 1 percent to $61.46 a barrel. U.S. West Texas Intermediate (WTI) crude settled 0.6 percent lower at $52.41 per barrel.

Trade talks between the United States and China resumed with working level discussions before high-level discussions later in the week.

While Beijing struck an upbeat note, it also expressed anger at a U.S. Navy mission through the disputed South China Sea. This cast a shadow as the two countries try to reach a deal before the March 1 deadline when U.S. tariffs on $200 billion worth of Chinese imports are scheduled to increase to 25 percent from 10 percent.

On Thursday, U.S. President Donald Trump said he did not plan to meet with Chinese President Xi Jinping before the March 1 deadline, dampening hopes of a quick trade pact.

Escalating U.S.-China trade tensions have cost both countries billions of dollars and disrupted global trade and business flows, roiling financial markets.

“There’s a lot of uncertainty about what’s going on with this trade war, whether they’re going to get anything done,” said Phil Flynn, oil analyst at Price Futures Group in Chicago. “You’ve got concerns about slowing growth.”

Still, oil prices have been buoyed this year by output curbs from the Organization of the Petroleum Exporting Countries and its allies, including Russia, a group known as OPEC+.

The deal, effective from January, aims to cut 1.2 million barrels per day until the end of June to forestall an supply overhang. Suhail Al Mazrouei, the Energy Minister of the United Arab Emirates, said on Monday the oil market should achieve this balance in the first quarter of 2019.

OPEC and its allies meet on April 17 and 18 in Vienna to review the agreement, but a draft cooperation charter seen by Reuters fell short of a new formal alliance among the producers.

U.S. sanctions on Venezuela, along with older sanctions on fellow OPEC member Iran, have also prevented crude prices from falling further.

Venezuela President Nicolas Maduro has sought OPEC support against the sanctions, citing their impact on oil prices and potential risks for other members of the producer group.

US oil prices edge up as market eyes tighter supply

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  • U.S. oil prices inched up on Tuesday, buoyed by expectations of tightening global supply due to U.S. sanctions on Venezuela and production cuts led by OPEC.
  • U.S. West Texas Intermediate (WTI) crude futures were at $54.77 per barrel at 0223 GMT, up 21 cents or 0.4 percent.
  • International Brent crude oil futures were at $62.72 a barrel, also up 21 cents or 0.4 percent, after closing down 0.4 percent in the previous session.

Oil pumps are seen in Lake Maracaibo, in Lagunillas, Ciudad Ojeda, in the state of Zulia, Venezuela.

Isaac Urrutia | Reuters
Oil pumps are seen in Lake Maracaibo, in Lagunillas, Ciudad Ojeda, in the state of Zulia, Venezuela.

U.S. oil prices inched up on Tuesday, buoyed by expectations of tightening global supply due to U.S. sanctions on Venezuela and production cuts led by OPEC.

U.S. West Texas Intermediate (WTI) crude futures were at $54.77 per barrel at 0223 GMT, up 21 cents or 0.4 percent. They closed down 1.3 percent on Monday, after earlier touching their highest since Nov. 21 at $55.75 a barrel.

International Brent crude oil futures were at $62.72 a barrel, also up 21 cents or 0.4 percent, after closing down 0.4 percent in the previous session.

Analysts said that 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, 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.

With fresh sanctions potentially looming, a flotilla loaded with about 7 million barrels of Venezuelan oil has formed in the Gulf of Mexico, some holding cargoes bought ahead of the latest U.S. sanctions and others whose buyers are weighing who to pay, according to traders, shippers and Refinitiv Eikon data.

Meanwhile, oil supply from the Organization of the Petroleum Exporting Countries fell in January by the largest amount in two years, a Reuters survey found, as Saudi Arabia and its Gulf allies over-delivered on the group’s supply-cutting pact while Iran, Libya and Venezuela registered involuntary declines.

Russia has been in full compliance with its pledge to gradually cut its oil production, Russian Energy Minister Alexander Novak said in a statement on Monday, adding that production fell by 47,000 barrels per day (bpd) in January from October.

Oil torn between economic slowdown concerns, OPEC-led supply cuts

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  • Oil prices were steady on Wednesday as signs of a global economic slowdown were countered by OPEC-led supply cuts which helped support Brent crude futures above $60 per barrel.
  • International Brent crude oil futures were at $60.66 per barrel at 0444 GMT, 2 cents above their last close.
  • U.S. West Texas Intermediate (WTI) crude futures were flat from their last settlement, at $52.11 a barrel.

Oil operations in the Permian Basin near Midland, Texas

Nick Oxford | Reuters
Oil operations in the Permian Basin near Midland, Texas

Oil prices were steady on Wednesday as signs of a global economic slowdown were countered by OPEC-led supply cuts which helped support Brent crude futures above $60 per barrel.

International Brent crude oil futures were at $60.66 per barrel at 0444 GMT, 2 cents above their last close.

U.S. West Texas Intermediate (WTI) crude futures were flat from their last settlement, at $52.11 a barrel.

“Fundamentals offer no clear price direction,” said Norbert Ruecker, head of commodity research at Swiss bank Julius Baer.

Prices were prevented from rising as signs of a global economic slowdown mounted.

China, Asia’s biggest economy, faces rising trade uncertainties this year, a commerce ministry official said on Wednesday, after the government earlier this week reported poor December trade data, with both exports and imports contracting from a year earlier.

In Japan, core machinery orders slowed sharply in November in a sign corporate capital expenditure could lose momentum as a bruising U.S.-China trade war spills into the global economy.

Adding to the trade woes, the U.S. economy is taking a larger-than-expected hit from a partial government shutdown, White House estimates showed on Tuesday, as contractors and even the Coast Guard go without pay and talks to end the impasse seem stalled.

The outlook for the global economy darkened further when British lawmakers on Tuesday overwhelmingly rejected Prime Minister Theresa May’s deal to leave the European Union.

OPEC cuts support crude

Despite this, oil markets are receiving support from supply cuts started late last year by producer group the Organization of the Petroleum Exporting Countries (OPEC) and major non-OPEC producer Russia.

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

U.S. crude oil output is expected to rise to a record of more than 12 million bpd this year and to climb to nearly 13 million bpd next year, the U.S. Energy Information Administration said on Tuesday, in its first 2020 forecast.

With so much uncertainty around demand and supply, the outlook for oil markets is unclear.

Oil prices are expected to oscillate close to current levels, according to a large annual survey of energy professionals conducted by Reuters between Jan. 8 and 11, with Brent prices in 2019 expected to average $65 per barrel, unchanged from surveys in 2016, 2017 and 2018.

“The oil market remains amply supplied and prices are set to trade rangebound,” Ruecker said. “Softening demand makes too-high prices short-lived … Similarly, (supply) cuts and slowing shale output make too-low prices short-lived.”

Brent crude prices fall below $60 on weak China trade data

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  • Brent crude oil prices fell below $60 per barrel on Monday after Chinese data showed weakening imports and exports in the world’s biggest trading nation.
  • China’s December exports fell by 4.4 percent from a year earlier, the biggest monthly drop in two years, official data showed on Monday, pointing to further weakening in the world’s second-largest economy. Imports also contracted, falling 7.6 percent, the biggest decline since July 2016.
  • Traders said the data pulled down crude oil futures and Asian stock markets alike, which had both posted modest gains earlier on Monday.

Brent crude oil prices fell below $60 per barrel on Monday after Chinese data showed weakening imports and exports in the world’s biggest trading nation.

International Brent crude oil futures were at $59.78 per barrel at 0312 GMT, down 70 cents, or 1.2 percent from their last close.

U.S. West Texas Intermediate (WTI) crude futures were down 63 cents, or 1.2 percent, $50.96 a barrel.

China’s December exports fell by 4.4 percent from a year earlier, the biggest monthly drop in two years, official data showed on Monday, pointing to further weakening in the world’s second-largest economy. Imports also contracted, falling 7.6 percent, the biggest decline since July 2016.

Traders said the data pulled down crude oil futures and Asian stock markets alike, which had both posted modest gains earlier on Monday.

Economic research firm TS Lombard said oil prices were capped as “the world economy is now slowing … limiting the scope for positive surprises in oil demand and hampering inventory reduction.”

Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank, said “the deterioration seen recently in forward-looking economic data from the U.S. to Europe and China” meant that the upside for crude oil futures was likely limited to $64 per barrel for Brent and for $55 for WTI.

The weak Chinese data countered general support that oil markets have been receiving since the start of the year from supply cuts from the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC allies, including Russia.

In the United States, drillers cut four oil rigs in the week to Jan. 11, bringing the total count down to 873, energy services firm Baker Hughes said in a weekly report on Friday.