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.

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.

Oil falls on economic slowdown, but OPEC output cuts offer some support

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  • Both international Brent and U.S. crude futures declined.
  • Weighing on financial markets, including crude oil futures, were concerns that trade disputes between the United States and China would remain unresolved, denting global economic growth prospects.
  • On Thursday, the European Commission sharply cut its forecasts for euro zone economic growth as it expects global trade tension and an array of domestic challenges.

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 markets fell on Friday, pulled down by an economic slowdown, although supply cuts led by producer club OPEC and U.S. sanctions against Venezuela provided crude with some support.

U.S. West Texas Intermediate (WTI) crude futures stood at $52.20 per barrel by 0351 GMT, down 44 cents, or 0.8 percent, from their last settlement. WTI dropped by around 2.5 percent the previous session.

International Brent crude oil futures were down by 44 cents, or 0.7 percent, at $61.19 per barrel, after falling 1.7 percent the previous session.

Weighing on financial markets, including crude oil futures, were concerns that trade disputes between the United States and China would remain unresolved, denting global economic growth prospects.

U.S. President Donald Trump said on Thursday he did not plan to meet with Chinese President Xi Jinping before a March 1 deadline set by the two countries to strike a trade deal.

If there is no agreement between the world’s two biggest economies, Trump has threatened to increase U.S. tariffs on Chinese imports. Another round of talks is scheduled for next week in Beijing.

“Crude prices returned to the lows of the week as slower growth prospects…could signal a return (of reasons) for inventories to rise,” said Edward Moya, market analyst at futures brokerage Oanda.

On Thursday, the European Commission sharply cut its forecasts for euro zone economic growth as it expects global trade tension and an array of domestic challenges.

The Commission said growth this year would slow to 1.3 percent from 1.9 percent in 2018, before rebounding in 2020 to 1.6 percent.

Despite this, traders said crude prices were prevented from falling much further by supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC), adopted late last year with the aim of tightening the market and propping up prices.

As part of the cuts, Saudi Arabia – the world’s biggest crude exporter – cut its output in January by about 400,000 barrels per day (bpd) to 10.24 million bpd, according to OPEC sources.

That puts Saudi crude oil production almost 1.7 million bpd below that of the United States, which has been churning out around 11.9 million bpd in late 2018 and early 2019 – up by more than 2 million bpd from a year earlier.

Another risk to supply comes from Venezuela after the implementation of U.S. sanctions against the OPEC member’s petroleum industry in late January. Analysts expect this move to knock out 300,000-500,000 bpd of exports.

Yet for the time being, the sanctions impact on international oil markets was limited.

“The (Venezuela) disruption overall seems manageable both for the U.S. and the global market,” said Norbert Rücker, head of commodity research at Swiss bank Julius Baer. “The oil market sits on a comfortable cushion of supply.”

Oil falls as US maintains record output, inventories climb

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  • Both international Brent and U.S. crude futures slipped.
  • U.S. crude oil inventories climbed by 1.3 million barrels in the week that ended Feb. 1 to 447.21 million barrels, data from the Energy Information Administration (EIA) showed on Wednesday.
  • Meanwhile, average weekly U.S. crude oil production remained at the record 11.9 million barrels per day (bpd) it reached in late 2018.

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

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

Oil prices fell on Thursday after U.S. crude inventories rose and as production levels in the country held at record levels, but OPEC-led supply cuts and Washington’s sanctions against Venezuela supported markets.

U.S. West Texas Intermediate (WTI) crude futures were at $53.84 per barrel at 0247 GMT, down 17 cents, or 0.3 percent, from their last settlement.

International Brent crude oil futures were down by 26 cents, or 0.4 percent, at $62.43 per barrel.

U.S. crude oil inventories climbed by 1.3 million barrels in the week that ended Feb. 1 to 447.21 million barrels, data from the Energy Information Administration (EIA) showed on Wednesday.

Meanwhile, average weekly U.S. crude oil production remained at the record 11.9 million barrels per day (bpd) it reached in late 2018. The United States is currently the world’s largest oil producer, ahead of traditional top suppliers Russia and Saudi Arabia.

Countering the rising U.S. crude output and inventories are voluntary supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) aimed at tightening the market and propping up prices.

Meanwhile, U.S. sanctions against Venezuela’s oil industry are expected to freeze the sales proceeds of 500,000 bpd of crude exports.

“The cumulative effect of OPEC-led output cuts along with additional U.S. sanctions on Venezuela’s state oil company … bolstered market sentiment,” said Benjamin Lu of Singapore-based brokerage Phillip Futures in a note on Thursday.

French Bank BNP Paribas cut its estimated average of 2019 prices for Brent to $68 per barrel and for WTI to $61 per barrel, both down by $8 from its previous outlook.

“We expect the oil price to rise in the first-half of 2019 on tightening supply conditions and decline in the second-half on weakening economic activity and an increase in U.S. crude exports to international markets,” said French bank BNP Paribas.

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.