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

CNBC

  • 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 oil prices edge up as market eyes tighter supply

CNBC

  • 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.”

Oil rises 1 percent on supply cuts, but economic slowdown weighs on outlook

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  • Oil prices rose 1 percent on Tuesday amid supply cuts led by producer club OPEC and Russia, although a darkening economic outlook capped gains.
  • International Brent crude oil futures were at $59.64 per barrel at 0257 GMT, up 65 cents, or 1.1 percent, from their last close.
  • While OPEC and Russia cut supply and Iran is restrained by sanctions, crude oil production in the United States hit a record 11.7 million barrels per day late last year.

Men work for Iraqi Drilling Company at Rumaila oilfield in Basra, Iraq,

Essam Al-Sudani | Reuters
Men work for Iraqi Drilling Company at Rumaila oilfield in Basra, Iraq,

Oil prices rose 1 percent on Tuesday amid supply cuts led by producer club OPEC and Russia, although a darkening economic outlook capped gains.

International Brent crude oil futures were at $59.64 per barrel at 0257 GMT, up 65 cents, or 1.1 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $51.09 per barrel, up 58 cents, or 1.2 percent.

“The impact of OPEC+ (OPEC and others including Russia) cuts, Iran sanctions and lower month-on-month growth in U.S. production should help to support oil prices from current levels,” U.S. bank J.P. Morgan said in a note.

The Middle East-dominated producer club of the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC allies, including Russia, agreed in late 2018 to cut supply to rein in a global glut.

Meanwhile, the United States last November re-imposed sanctions against Iran’s oil exports. Although Washington granted sanctions waivers to Iran’s biggest oil customers, mostly in Asia, the Middle Eastern country’s exports have plummeted since.

“Iranian exports have already fallen sharply and are likely to remain at around 1.3 million barrels per day (bpd) in 2019, 1.3 million bpd down vs their 1H18 average,” HSBC said in its 2019 oil market outlook.

While OPEC and Russia cut supply and Iran is restrained by sanctions, crude oil production in the United States hit a record 11.7 million bpd late last year.

The surging output increasingly allows U.S. oil producers to export crude, including to top importer China.

Three cargoes of U.S. crude are currently heading to China from the U.S.

Gulf Coast, the first departures since late September and a 90-day pause in the two countries’ trade war that began last month.

The tankers are scheduled to arrive at Chinese ports between late January and early March, according to shipbrokers and vessel tracking data.

Looming over oil and financial markets, however, is an economic slowdown.

Tuesday’s oil price increases came after crude futures fell by more than 2 percent the previous session, dragged down by weak Chinese trade data which pointed to a global economic slowdown.

“The outlook for the global economy continues to be highly uncertain,” HSBC said.

The bank said it had cut its average 2019 Brent crude oil price forecast by $16 per barrel, to $64 per barrel, citing surging U.S. production and an “increasingly uncertain demand backdrop”.

Oil prices fall after jump the day before; glut, economy worries weigh

CNBC

  • Both Brent and U.S. crude futures slipped as of 0611 GMT after soaring at least 7.9 percent each during the previous session.
  • Both crude benchmarks are down at least 37 percent from highs touched in October.

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 fell on Thursday after soaring at least 7.9 percent in the previous session, as worries over a glut in crude supply and concerns over a faltering global economy pressured prices even as a stock market surge offered support.

Brent crude oil futures were down 16 cents, or 0.29 percent, at $54.31 per barrel by 0611 GMT. They rose 7.9 percent to $54.47 a barrel the day before.

U.S. West Texas Intermediate (WTI) crude futures fell 0.37 percent to $46.05 per barrel. They jumped 8.7 percent to $46.22 per barrel in the previous session.

Both crude benchmarks are down at least 37 percent from highs touched in October.

Global stocks rebounded on Wednesday on the back of the Trump administration’s attempt to shore up investor confidence and a report on strong U.S. holiday spending.

Shim Hye-jin, a commodity analyst at Samsung Securities in Seoul, said oil prices were still low despite gains made the day before.

“But if OPEC’s cuts are fulfilled, WTI prices are expected to rise to $50-60 a barrel, while Brent is expected to go up to between $58-70 a barrel next year.”

The Organization of the Petroleum Exporting Countries (OPEC) and its allies including Russia, agreed at a meeting earlier this month to limit output by 1.2 million barrels per day starting in January.

Meanwhile, potentially bolstering oil prices, a preliminary Reuters poll on Wednesday forecast that U.S. crude inventories would drop 2.7 million barrels in the week to Dec. 21, marking their fourth straight week fall.

The American Petroleum Institute’s (API) inventory data is due on Thursday, while the government’s Energy Information Administration (EIA) is set to release its report on Friday.

— CNBC contributed to this report.