Oil mixed as OPEC cuts, U.S. sanctions prop up prices while trade war weighs

SINGAPORE (Reuters) – Oil prices were mixed on Tuesday as supply cuts, led by producer club OPEC, and U.S. sanctions on fuel exports from Iran and Venezuela supported crude, while concerns about an economic slowdown weighed on the market.

Front-month Brent crude futures, the international benchmark for oil prices, were at $69.99 at 0637 GMT, down 12 cents, or 0.2%, from the last session’s close, when they rose 2.1%.

U.S. West Texas Intermediate (WTI) crude futures were at $59.03 per barrel, up 40 cents, or 0.7%, from their last close on Friday. WTI did not trade on Monday due to a U.S. public holiday.

Prices have been supported by supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) since the start of the year, and by political tensions in the Middle East.

OPEC and some allies including Russia are due to meet on June 25 and 26 to discuss output policy.

Beyond the output cuts, U.S. bank, Citi said, “Geopolitical turmoil across the Middle East … are likely to encourage financial investors to realign with their bullish physical counterparties.”

In physical oil markets, Middle East crude premiums hit their highest levels in years earlier this month amid falling supply.

Beyond the OPEC cuts, U.S. sanctions on petroleum exports from Iran and Venezuela have tightened markets.

“Iran exports remain under pressure as U.S. sanctions bite. This comes as OPEC appears to be heading towards extending the current production cut agreement,” Citi added.

Trump last year withdrew the United States from a 2015 international nuclear deal with Iran, and Washington is ratcheting up sanctions seeking to end Tehran’s international sales of crude oil and strangle its economy.

Washington has also imposed sanctions on Venezuela’s oil exports, in a bid to topple the government under President Nicolas Maduro there.

Despite this, markets remain cautious amid an economic slowdown as a result of the ongoing trade war between the United States and China, which is also expected to dent fuel consumption.

“We really need to see some strong demand figures, which so far this year has not happened, before we can really start listening to the bulls,” said Matt Stanley, a broker at Starfuels in Dubai.

Reporting by Henning Gloystein; Editing by Richard Pullin and Joseph Radford

Oil prices spike more than 3% on reports that US will end waivers for Iran sanctions

KEY POINTS
  • Brent crude futures surged more than 3 percent to over $74 per barrel on Monday morning during Asia hours, while U.S. crude futures rose around 2.67 percent to $65.71 per barrel.
  • The oil spike followed reports that U.S. Secretary of State Mike Pompeo will announce that from May 2, the State Department will no longer grant sanctions waivers to any country that is currently importing Iranian crude or condensate.
GP: Iran Oil Tanker 190121
The oil tanker ‘Devon’ prepares to transfer crude oil from Kharg Island oil terminal to India in the Persian Gulf, Iran, on March 23, 2018.
Ali Mohammadi | Bloomberg | Getty Images

Oil prices spiked by more than 3 percent on Monday — past highs not seen since November 2018 — after reports that Washington is set to announce that all buyers of Iranian oil will have to end imports, or be subject to U.S.sanctions.

Brent crude futures surged more than 3 percent to over $74 per barrel on Monday morning during Asia hours, while U.S. crude futures rose around 2.67 percent to $65.71 per barrel.

That price spike followed a report by the Washington Post, citing two unnamed State Department officials, that U.S. Secretary of State Mike Pompeo will announce that “as of May 2, the State Department will no longer grant sanctions waivers to any country that is currently importing Iranian crude or condensate.” Condensate is an ultra-light form of crude oil.

Following that report, Reuters confirmed the news, citing a source familiar with the matter.

VIDEO03:22
Oil prices could hit $80 per barrel in first half of 2019: JBC Energy

Brent prices have risen by more than a third this year, while U.S. crude has soared more than 40 percent.

The U.S. reimposed sanctions in November on exports of Iranian oil after U.S. President Donald Trump unilaterally pulled out of a 2015 nuclear accord between Iran and six world powers. Washington, however, granted Iran’s eight main buyers of oil, mostly in Asia, waivers to the sanctions which allowed them limited purchases for an additional six months.

Impact on India

The eight buyers are China and India — Iran’s biggest customers — as well as JapanSouth KoreaItalyGreeceTurkey and Taiwan.

“The sanctions (are) obviously one of the major movers, I think, which is influencing prices,” said Daryl Liew, head of portfolio management at financial services company Reyl Singapore. He also pointed to stronger-than-expected economic growth data from China last week, which could be driving demand expectations.

Of the buyers of Iranian oil, he said India could suffer the most from Washington’s move.

“I think India is probably one of the key potential countries that might suffer from a higher oil price, in terms of their current account deficit, for example. And that’s going to be basically putting pressures on inflationary pressures as well,” Liew said, speaking on CNBC’s “Street Signs” on Monday.

“No doubt the Indian central bank has … turned to a more dovish stance in recent meetings. But if oil prices continue to hit higher, and inflationary pressures come back into the picture again for India especially, then the central bank probably has to reverse the dovish moves,” he concluded.

Tightening supplies, Libya conflict

That development on sanctions comes as global oil supply is already tightening, with OPEC leading supply cuts since the beginning of this year, to prop up crude prices.

In the U.S., energy firms last week reduced the number of oil rigs operating by two, to 825, General Electric’s Baker Hughes energy services firm said in its weekly report on Thursday.

VIDEO06:10
Oil prices likely to head higher as OPEC stands firm on production cuts, says RBC’s Helima Croft

Meanwhile, major OPEC oil producer Libya’s capital Tripoli was hit by a series of airstrikes and explosions over the weekend, in escalating violence that could threaten oil supply further.

The country has been torn by conflict since the fall of dictator Muammar Gaddafi in 2011. It was sent into fresh conflict in recent weeks after its eastern military leader ordered his forces to move in on the capital where the United Nations-recognized government sits.

Analysts and traders keep a close eye on Libya because its oil production has been one of the biggest wild cards in the oil market in recent years. Its output has fluctuated wildly as the nation’s southern oil fields have frequently gone offline amid fighting.

One analyst told CNBC on Monday that the Libya situation will put more pressure on oil prices, particularly if the conflict escalates.

“Libya is producing 1.1 million barrels per day. If things go wrong, immediately somewhere around 300,000 to 400,000 barrels per day of oil may be affected,” said Kang Wu, head of analytics for Asia at S&P Global Platts.

“A lot depends on how Saudi Arabia will react to the situation — they have surplus capacity — but supply concerns will keep pressure on oil prices in the short term, ” Wu added.

— Reuters and CNBC’s Tom DiChristopher contributed to this report.

Oil prices hover close to 2019 highs on OPEC output cuts, U.S. sanctions

REUTERS

U.S. sanctions against oil producers Iran and Venezuela are also boosting prices, although traders said the market may be capped by rising U.S. output.

U.S. West Texas Intermediate (WTI) futures were at $59.14 per barrel at 0746 GMT, up 5 cents from their last settlement and close to the 2019 high of $59.23 reached the previous day.

Brent crude oil futures were up 20 cents at $67.74 per barrel, also close to this year’s peak of $68.14 marked late last week.

In China, Shanghai crude futures, launched in March last year, bounced 4.5 percent from their last close to 468.2 yuan ($69.71) per barrel, also near 2019 highs of 475.7 yuan a barrel hit during a brief spike in February.

In dollar-terms, this pushed Shanghai crude into a premium over Brent.

The Organization of the Petroleum Exporting Countries (OPEC) on Monday scrapped its planned meeting in April, effectively extending supply cuts that have been in place since January until at least June, when the next meeting is scheduled.

OPEC and a group of non-affiliated producers including Russia, known as OPEC+, started withholding supply to halt a sharp price drop in the second-half of 2018, when markets came under pressure from surging output as well as an economic slowdown.

“The OPEC+ deal has brought stability to crude prices and signs of an extension have taken crude higher,” said Alfonso Esparza, senior market analyst at futures brokerage OANDA.

Prices have been further supported by U.S. sanctions against oil exports from Iran and Venezuela, traders said.

Because of the tighter supply outlook for the coming months, the Brent forward curve has gone into backwardation since the start of the year, meaning that prices for immediate delivery are more expensive than those for dispatch further in the future, with May Brent prices currently around $1.20 per barrel more expensive than December delivery Brent.

Outside OPEC, analysts are eyeing U.S. crude oil production, which has soared by more than 2 million barrels per day (bpd) since early 2018, to around 12 million bpd, making the United States the world’s biggest producer ahead of Russia and Saudi Arabia.

Weekly output and storage data will be published by the Energy Information Administration (EIA) on Wednesday.

On the demand-side, there is concern that an economic slowdown will erode oil consumption.

Bank of America Merrill Lynch said in a note that economic “risks are skewed to the downside” and that “we forecast global demand growth of 1.2 million bpd year-on-year in 2019 and 1.15 million bpd during 2020”.

The bank said it expected “Brent and WTI to average $70 per barrel and $59 per barrel respectively in 2019, and $65 per barrel and $60 per barrel in 2020.”

Reporting by Henning Gloystein; Editing by Richard Pullin and Joseph Radford

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

CNBC

  • 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.

Getty Images
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 dips as soaring US production outweighs talk of OPEC output cuts

CNBC

  • Oil remains in ample availability despite U.S. sanctions on Iran fuel exports going into effect.
  • U.S. crude output has tripled since 2008, with the Energy Information Administration expecting it to break through 12 million barrels per day by mid-2019.

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 dipped on Thursday as record U.S. crude output heightened concerns of a return of global oversupply, stoking talk from within OPEC that production curbs may become necessary once again to prevent a glut.

Front-month Brent crude oil futures were at $71.93 a barrel at 00301 GMT, down 14 cents from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $61.68 per barrel, virtually flat from their last settlement.

Benjamin Lu of brokerage Phillip Futures in Singapore said that overall, “Oil prices continue to demonstrate…bearish influences amidst market concerns of rising global inventories… (and as) increasing output levels threaten to upset supply fundamentals in Q4 2018.”

A group of producers around the Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC) as well as Russia decided last June to relax output curbs in place since 2017, after pressure from U.S. President Donald Trump to reduce oil prices and make up for supply losses from Iran.

But with Iran sanctions now in place and oil still in ample availability, OPEC-led production cuts next year cannot be ruled out, two OPEC sources said on Wednesday.

“OPEC and Russia may use cuts to support $70 per barrel,” said Ole Hansen, head of commodity strategy at Saxo Bank.

“The introduction of U.S. sanctions earlier this week against Iran failed to lift the market given the announcement that eight countries, including three of the world’s biggest importers, would receive waivers to carry on buying Iranian crude for up to six months,” Hansen said.

Concerns over potential oversupply

At the heart of rising global output has been a relentless increase in U.S. crude production, which hit a record 11.6 million barrels per day (bpd) in the week ending Nov. 2, according to Energy Information Administration (EIA) data released on Wednesday.

That’s a threefold increase from the U.S. low reached a decade ago, and a 22.2 percent rise just this year. It makes the United States the world’s biggest producer of crude oil.

More U.S. oil will likely come. The EIA expects output to break through 12 million bpd by mid-2019, thanks largely to a surge in shale oil production.

Meanwhile, U.S. crude inventories rose by 5.8 million barrels in the week ending Nov. 2, to 431.79 million barrels, the EIA said.

Crude stocks moved back above their five-year average levels in October.

Production has not just risen in the United States, but also in many other countries, including Russia, Saudi Arabia, Iraq and Brazil, stoking producer concerns of a return of oversupply that depressed oil prices between 2014 and 2017.

“Producers are concerned about the potential oversupply … after EIA reported that crude inventories rose by 5.8 million barrels,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.