Oil prices rise on OPEC supply cuts and healthy demand

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Reuters

KEY POINTS
  • U.S. West Texas Intermediate (WTI) crude oil futures were at $56.97 per barrel at 0054 GMT, up 18 cents, or 0.3 percent, from their last settlement.
  • Brent crude futures were at $66.75 per barrel, up 17 cents, or 0.3 percent.
  • Bank of America Merrill Lynch said oil prices will still be supported by OPEC-led supply cuts and strong demand for marine diesel from the International Maritime Organization, despite economic headwinds this year.
Reusable CNBC: oil drilling rig West Texas 150825-Brennan
Morgan Brennan | CNBC

Oil prices rose on Tuesday, lifted by healthy demand and output cuts led by producer group OPEC.

A rally in broader financial markets also supported crude futures, although analysts still warned of risks to the global economy.

U.S. West Texas Intermediate (WTI) crude oil futures were at $56.97 per barrel at 0054 GMT, up 18 cents, or 0.3 percent, from their last settlement.

Brent crude futures were at $66.75 per barrel, up 17 cents, or 0.3 percent.

”(Despite economic headwinds), we still see Brent prices averaging $70 per barrel this year and expect WTI to lag, averaging $59 per barrel in 2019,” said Bank of America Merrill Lynch.

It said that was partly due to demand for marine diesel expected from next year as part of new fuel rules from the International Maritime Organization.

“With diesel yields already maxed out, refiners may need to lift runs in 2H19 to meet rising demand for marine distillates,” it said.

Oil prices have been receiving broad support this year from supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and non-affiliated allies like Russia aimed at tightening markets.

Traders also pointed to the political and economic crisis in OPEC-member Venezuela as a driver for oil prices.

Venezuela’s opposition-run congress on Monday declared a “state of alarm” over a five-day power blackout that has crippled the country’s oil exports and left millions of citizens scrambling to find food and water.

Surging US output

Offsetting OPEC efforts to tighten the market and disruptions like Venezuela is a surge in U.S. oil supply.

The United States will drive global oil supply growth over the next five years, adding another 4 million barrels per day (bpd) to the country’s already booming output, the International Energy Agency said on Monday.

U.S. crude oil output will rise nearly 2.8 million bpd, growing to 13.7 million bpd in 2024 from an average of just under 11 million bpd in 2018, the IEA said, making the United States by far the biggest oil producer in the world.

With U.S. production booming, the country needs to import less and is increasingly turning abroad to sell surplus oil.

“The decrease in net crude oil imports (December, 2018) was driven primarily by lower imports from Saudi Arabia (down 160,000 bpd month-on-month) and higher exports to Asian countries such as South Korea (up 200,000 bpd month-on-month), China (up 90,000 bpd month-on-month) and India(80,000 bpd month-on-month), ” Barclays bank said.

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

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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.

Oil edges up on OPEC cuts, US sanctions against Venezuela and Iran

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Reuters
KEY POINTS
  • U.S. West Texas Intermediate (WTI) crude oil futures were at $56.45 per barrel at 0234 GMT, up 23 cents, or 0.4 percent, from their last settlement.
  • Brent crude futures were at $66.36 per barrel, up 37 cents, or 0.6 percent.
Reusable: Texas oil production fracking worker cleans off truck 150204
A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.
Getty Images

Oil edged up on Thursday amid ongoing OPEC-led supply cuts and U.S. sanctions against exporters Venezuela and Iran, although prices were prevented from rising further by record U.S. crude output and rising commercial fuel inventories.

U.S. West Texas Intermediate (WTI) crude oil futures were at $56.45 per barrel at 0234 GMT, up 23 cents, or 0.4 percent, from their last settlement.

Brent crude futures were at $66.36 per barrel, up 37 cents, or 0.6 percent.

Prices are being supported by efforts led by the Organization of the Petroleum Exporting Countries (OPEC) and other countries – a grouping known as ‘OPEC+’ – to withhold around 1.2 million barrels per day (bpd), a strategy designed to tighten markets.

“In our view, OPEC’s strategy is to rebalance the market as quickly as possible and exit the cuts by the end of June in order to grow production alongside shale producers in the second half of this year,” U.S. investment bank Goldman Sachs said in a note on Wednesday.

U.S. sanctions against the oil industries of OPEC members Iran and Venezuela have also had an impact, traders said.

Venezuela’s state-run oil firm PDVSA this week declared a maritime emergency, citing trouble accessing tankers and personnel to export its oil amid the sanctions.

Surging U.S. supply

Despite these factors, oil remains in plentiful supply thanks to surging U.S. production.

U.S. crude oil stockpiles rose much more than expected last week, with inventories up by 7.1 million barrels to 452.93 million barrels, according to a weekly report by the U.S. Energy Information Administration (EIA) on Wednesday.

Meanwhile U.S. crude oil production remained at a record 12.1 million bpd, an increase of more than 2 million bpd since early 2018.

That, along with the easing of a transportation bottleneck for low-cost U.S. Permian Basin shale oil, could produce sequentially higher production, Goldman Sachs said.

“The balance between rising U.S. production and the OPEC+ efforts to stabilise prices with a production cut was broken by higher than expected U.S. inventories and the OECD warning of lower global growth impacting energy demand going forward,” said Alfonso Esparza, senior analyst at futures brokerage OANDA.

The Organisation for Economic Co-Operation & Development (OECD) said on Wednesday the world economy would grow 3.3 percent in 2019, down 0.2 percentage points from the OECD’s last set of forecasts in November.

Oil falls as China trims economic growth target, but OPEC-led cuts support

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Reuters

KEY POINTS
  • Both international benchmark Brent and U.S. crude futures declined.
  • Oil demand growth has been flagging along with an economic slowdown, especially in Europe and Asia.

Oil prices fell on Tuesday as China cut its 2019 economic growth target, dimming the outlook for fuel demand, although OPEC-led efforts to cut output still offered some support.

U.S. West Texas Intermediate (WTI) crude oil futures were at $56.28 per barrel at 0426 GMT, down 31 cents, or 0.6 percent, from their last settlement.

Brent crude futures were at $65.33 per barrel, down 34 cents, or 0.5 percent.

“Near term … it is hard to get very bullish on oil prices. The market is still working off the surpluses built in H2 2018, keeping OECD commercial inventories stuck above the five-year average,” said energy analysts at economic research firm TS Lombard.

Oil demand growth has been flagging along with an economic slowdown, especially in Europe and Asia.

China said on Tuesday it was targeting economic growth of 6.0 to 6.5 percent in 2019, down from the 6.6 percent growth reported last year, which was already the lowest in decades.

Fuel efficiency is also improving, denting demand growth.

“2018 was the weakest (refined product) demand growth year since 2011,” Bank of America Merrill Lynch said in a note.

Trade talk hopes

Optimism that the United States and China will soon end their bitter trade disputes has offered some support.

China’s Commerce Minister Zhong Shan said on Tuesday that trade talks with the United States have been difficult but that working teams from both countries are continuing with their negotiations.

To prop up the market, the Organization of the Petroleum Exporting Countries (OPEC) has led efforts since the start of the year to withhold around 1.2 million barrels per day (bpd) of supply.

The group was due to decide in April whether to continue withholding supply, but OPEC sources said this week a decision would likely be delayed until June, meaning cuts will continue at least until then.

The OPEC-led supply cuts, as well as U.S. sanctions against its members Iran and Venezuela, come at the same time as U.S. crude output chases ever new records, rising by more than 2 million barrels per day (bpd) since early 2018 and above 12 million bpd for the first time in February.

The cuts to OPEC supply have pushed up the Brent international crude price benchmark due to a shortage of the heavy crudes that OPEC mostly produces. At the same time, the surge in U.S. output is weighing down U.S. WTI prices as there is ample supply of America’s mainly light crudes.

Because of this, energy researchers at TS Lombard said “the Brent-WTI spread can be expected to stay wide.”

WTI’s front-month price spread to Brent has declined from near parity in 2016 to an average discount of $8.50 per barrel since the start of 2019.

During the same time, U.S. crude output has risen by almost 3 million bpd.

Oil climbs on US-China trade deal hopes, OPEC’s deepening supply cuts

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Reuters

KEY POINTS
  • Both international benchmark Brent and U.S. crude futures advanced.
  • The rally came on reports that the United States and China are close to ending their trade disputes
  • Supply from the Organization of the Petroleum Exporting Countries fell to a four-year low in February, a Reuters survey found.
Reusable: Oil prices gas station filling up Bangkok Thailand 160106
A worker grabs a nozzle at a PTT gas station in Bangkok, Thailand, January 5, 2016.
Athit Perawongmetha | Reuters

Oil prices rose on Monday as supply tightened amid output cuts by producer club OPEC and as the United States and China were reported to be close to signing a trade deal that would end a tariff row that has slowed global economic growth.

International Brent futures were at $65.39 a barrel at 0416 GMT, up 32 cents, or 0.5 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $56.08 per barrel, up 28 cents, or 0.5 percent.

The rally came on reports that the United States and China are close to ending their trade disputes, which have weighed on global economic growth.

U.S. President Donald Trump and Chinese President Xi Jinping could reach a formal trade deal at a summit around March 27 given progress in talks between the two countries, the Wall Street Journal reported on Sunday.

The news added support to a market that has been rallying for the past two months on cuts to production.

Supply from the Organization of the Petroleum Exporting Countries (OPEC) fell to a four-year low in February, a Reuters survey found, as top exporter Saudi Arabia and its allies over-delivered on the group’s supply pact while Venezuelan output registered a further involuntary decline.

“OPEC exports are off by over 1.5 million barrels per day (bpd) since November,” Barclays bank said in a note released on Sunday.

“The supply picture looks generally tighter this year,” said energy analysts at Fitch Solutions in a note on Monday, adding they expected Brent to average $73 per barrel in 2019.

Oil prices have been further pushed up by U.S. sanctions against OPEC-members Iran and Venezuela, which Barclays bank estimates to have resulted in a reduction of around 2 million bpd in global crude supply.

In the United States, there are signs that the oil production boom of the past years, which has seen crude output rise by more than 2 million bpd since early 2018 to more than 12 million bpd, may slow down.

U.S. energy firms last week cut the number of oil rigs looking for new reserves to the lowest in almost nine months as some producers follow through on plans to cut spending despite an over 20-percent increase in crude futures so far this year.

Despite this, Barclays said “we believe that there could be a repeat performance in the second-half of this year” for U.S. oil output.