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.

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 prices firm on OPEC-led supply cuts, sanctions against Venezuela

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  • OPEC oil supply fell in January by the largest amount in two years despite sluggish production declines from Russia, according to a Reuters survey.

174362712AB024_OIL_BOOM_SHI

Andrew Burton | Getty Images

Oil prices prices were stable on Monday, largely maintaining gains from the previous session as OPEC-led supply cuts and U.S. sanctions against Venezuela provided the market with support.

International Brent crude oil futures were at $62.76 per barrel at 0507 GMT on Monday, 1 cent above their last close. Brent rose by more than 3 percent in the previous session to their highest close since Nov. 21.

U.S. West Texas Intermediate (WTI) futures were at $55.20 per barrel, down 6 cents from their last settlement. WTI settled 2.73 percent higher in the last session at its highest close since Nov. 19.

Output declines from the Organization of the Petroleum Exporting Countries (OPEC) as they make good on their pact to curb a supply overhang were compounded by falling U.S. oil rig counts and sanctions on Venezuelan oil sales.

“While Venezuela’s output reportedly rose last month, fresh U.S. sanctions on the country could see 0.5 to 1 percent of global supply curtailed,” said Vivek Dhar, commodities analyst for Commonwealth Bank of Australia in a note on Monday.

The sanctions will sharply limit oil transactions between Venezuela and other countries and are similar to those imposed on Iran last year, experts said after examining details posted by the Treasury Department.

OPEC oil supply fell in January by the largest amount in two years despite sluggish production declines from Russia, according to a Reuters survey.

Russian oil output in January missed the target for the output cuts, Energy Ministry data showed on Saturday. Production last month declined to 11.38 million barrels per day (bpd), but that was only down by 35,000 bpd from its October 2018 level that is the baseline for the pact.

Russian Energy Minister Alexander Novak has said the country’s overall cuts from the October baseline would total 50,000 bpd in January. Russia has pledged to reduce oil output by 230,000 bpd from October.

U.S. energy firms last week cut the number of oil rigs operating to their lowest in eight months, to 847, as some drillers followed through on plans to spend less on new wells this year.

“The collapse in oil prices late last year has resulted in more cautious spending by U.S. oil explorers,” said Dhar.

Meanwhile, hopes for thawing China-U.S. relations have also helped ease concerns over slowing economic growth.

“While the United States and China have yet to reach a deal, markets were buoyed by reports that they have made significant progress,” ANZ Bank said in a research note.

U.S. President Donald Trump last week said he would meet with Chinese President Xi Jinping, perhaps twice, in the coming weeks to try to seal a comprehensive trade deal with Beijing, but acknowledged it was not yet clear whether a deal could be reached.

Overall, Fitch Solutions said on Monday oil markets had a “fundamentally bullish outlook due mainly to the supply cuts led by OPEC as well as increasing oil demand despite the slowdown in economic growth.”

Oil caught between trade talk hopes, weak China data

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  • Oil prices were caught between hopes that Washington and Beijing could soon settle their trade disputes and fresh concerns over China’s economy..

Oil tanker

Jean-Paul Pelissier | Reuters

Oil prices held steady on Friday, torn between hopes the United States and China could soon settle their trade disputes and new data raising fresh concerns over China’s economic slowdown.

International Brent crude oil futures were at $60.87 per barrel at 244, 3 cents above their last close.

U.S. West Texas Intermediate (WTI) futures were at $53.70 per barrel, down 9 cents, or 0.2 percent their last settlement.

Oil futures received support from a broader financial market rally, which saw Asian shares hit four-month highs on Friday on hopes the United States and China could strike a trade deal.

U.S. President Donald Trump said on Thursday he will meet with Chinese President Xi Jinping soon to try to seal a comprehensive trade deal as Trump and his top trade negotiator both cited substantial progress in two days of high-level talks.

Yet prices were weighed down by a survey on Friday that showed China’s factory activity shrank by the most in almost three years in January amid slumping orders, reinforcing fears a slowdown in the world’s second-largest economy is deepening.

Despite these concerns, traders said oil markets overall are being supported by supply cuts from the Organization of the Petroleum Exporting Countries (OPEC), which according to a Reuters poll pumped 30.98 million barrels per day (bpd) in January, down 890,000 bpd from December.

In Venezuela, meanwhile, U.S. sanctions imposed on state oil firm PDVSA this week are keeping tankers stuck at ports and are expected to accelerate the supply drop in February.

“The latest U.S. sanctions could directly halt around 500,000 barrels per day (bpd) of Venezuelan exports to the U.S.,” Citi bank said.

Much Venezuelan crude oil is rated as heavy and requires the light petroleum naphtha, much of it supplied from the United States, for dilution before export to refineries.

“An additional 350,000 bpd of Venezuelan oil output is at risk due to the lack of U.S. dilutents, a result of the U.S. product exports ban with immediate effect,” Citi said.