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 slips on economic slowdown, but OPEC-led cuts still support

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KEY POINTS
  • Brent crude oil futures were at $67.03 per barrel at 0231 GMT, down 13 cents, or 0.2 percent, from their last close, but not far off the $68.14 per barrel 2019-high reached last week.
  • U.S. West Texas Intermediate (WTI) futures were at $58.32 per barrel, down 20 cents, or 0.3 percent, from their last settlement, and also not far off their 2019-high of $58.95 from the previous week.
  • Despite the lower prices, crude markets remain broadly supported by supply cuts led by producer group OPEC and U.S. sanctions against Iran and Venezuela.
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.
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Oil prices dipped on Monday amid concerns that an economic downturn may dent fuel consumption, but crude markets remain broadly supported by supply cuts led by producer group OPEC and U.S. sanctions against Iran and Venezuela.

Brent crude oil futures were at $67.03 per barrel at 0231 GMT, down 13 cents, or 0.2 percent, from their last close, but not far off the $68.14 per barrel 2019-high reached last week.

U.S. West Texas Intermediate (WTI) futures were at $58.32 per barrel, down 20 cents, or 0.3 percent, from their last settlement, and also not far off their 2019-high of $58.95 from the previous week.

“The greatest downside risk to our oil price view is demand weakness on slower economic growth. Our base case is that global oil demand will increase by 1.3 million barrels per day (bpd) in 2019… A synchronized global slowdown in growth could push global demand growth to below 1 million bpd,” Bernstein Energy said on Monday.

U.S. manufacturing output fell for a second straight month in February, in a sign that the world’s biggest economy has been slowing down in the first quarter.

In Asia, Japan’s exports fell for a third straight month in February in a sign of growing strain from slowing global demand.

Despite this, oil prices have gained around a quarter since the start of the year amid U.S. sanctions against Iran and Venezuela, and as the Organization of the Petroleum Exporting Countries (OPEC) and non-affiliated allies like Russia — known as OPEC+ — have pledged to withhold 1.2 million bpd in supply to prop up prices.

OPEC’s de-facto leader Saudi Arabia said on Sunday that balancing oil markets was far from done as inventories were still high.

Russia also said production cuts would stay in place at least until June.

As a result, Bernstein forecast an inventory draw of 37 million barrels in the first quarter for the 36 member countries of the Organisation for Economic Co-operation and Development (OECD), which comprises most industrialized nations.

The International Energy Agency (IEA) said on Friday it expected oil markets to be in a modest deficit from the second quarter of 2019.

Key for the supply and demand balance will be the United States, where crude production has soared by around 2 million bpd over the past year, thanks largely to an onshore boom in shale formation drilling.

The number of rigs drilling for new oil production in the United States has been falling in 2019, and hit its lowest level since April 2018 last week, at 833 operating rigs.

However, U.S. crude oil production still increased at the start of 2019, hitting a record 12.1 million barrels per day (bpd) in February, data from the Energy Information Administration (EIA) showed.

Output has since dipped back to 12 million bpd, but that still makes America the world’s biggest crude oil producer.

Oil prices slide on economic slowdown, surging US supply

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KEY POINTS
  • U.S. West Texas Intermediate (WTI) crude oil futures were at $56.32 per barrel, down 34 cents, or 0.6 percent, from their last settlement.
  • Brent crude oil futures were at $65.83 per barrel at 0358 GMT, down 47 cents, or 0.7 percent from their last close.
  • Financial markets, including crude oil futures, took a hit after ECB President Mario Draghi said on Thursday the economy was in “a period of continued weakness and pervasive uncertainty”.
  • China’s February dollar-denominated exports fell 21 percent from a year earlier, coming in far worse than analysts’ expectations, while imports dropped 5.2 percent, official data showed on Friday.
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An oil well owned an operated by Apache Corporation in the Permian Basin is shown in Garden City, Texas, Feb. 5, 2015.
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Oil prices fell on Friday amid growing investor jitters over the global economy, after the European Central Bank (ECB) warned overnight of continued weakness and as fresh data showed Chinese exports and imports slumped last month.

With surging U.S. supply also unsettling markets, international benchmark Brent crude oil futures were at $65.83 per barrel at 0358 GMT, down 47 cents, or 0.7 percent from their last close.

U.S. West Texas Intermediate (WTI) crude oil futures were at $56.32 per barrel, down 34 cents, or 0.6 percent, from their last settlement.

Financial markets, including crude oil futures, took a hit after ECB President Mario Draghi said on Thursday the economy was in “a period of continued weakness and pervasive uncertainty”. Europe’s economic weakness comes as growth in Asia is also slowing down.

A slowdown in economic growth would also likely result in stalling fuel demand, putting pressure prices.

China’s February dollar-denominated exports fell 21 percent from a year earlier, coming in far worse than analysts’ expectations, while imports dropped 5.2 percent, official data showed on Friday.

On the supply side, prices have been receiving support this year from output cuts led by the Organization of the Petroleum Exporting Countries (OPEC). Together with some non-affiliated producers like Russia, the producer group has pledged to withhold around 1.2 million barrels per day (bpd) of supply to tighten markets and prop up prices.

But these efforts are being undermined by soaring U.S. crude oil production, which has increased by more than 2 million bpd since early 2018, to an unprecedented 12.1 million bpd. That makes America the world’s biggest producer, ahead of Russia and Saudi Arabia.

US to become top oil exporter?

As a result, U.S. crude exports have also been chasing new records, reaching 3.6 million bpd in February – more than OPEC members like the United Arab Emirates, Kuwait or Iran produce.

Some analysts even expect the United States to soon overtake Saudi Arabia as the world’s biggest oil exporter.

“In a pivotal geopolitical shift, the United States will soon export more oil and liquids than Saudi Arabia,” consultancy Rystad Energy said this week. Liquids include non-crude oil products like natural gas liquids (NGLs).

“The (Saudi) kingdom currently exports some 7 million bpd of crude oil plus about 2 million bpd of NGLs and petroleum products, compared with the U.S. now exporting approximately 3 million bpd of crude oil and 5 million barrels of NGLs and petroleum products,” Rystad said.

The consultancy “forecasts that U.S. oil production…will grow by close to another 1 million bpd in 2019.”

Beyond added supply to global markets and likely downward pressure on crude prices, Rystad said this export surge would have huge benefits for the U.S. economy.

“The U.S. trade deficit will evaporate, and its foreign debt will be paid quickly thanks to the swift rise of American oil and gas net exports,” said Rystad Energy senior partner Per Magnus Nysveen.

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

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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.
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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 dips on US stocks build, production outlook

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KEY POINTS
  • Both international benchmark Brent and U.S. crude futures declined.
  • Chevron Corp and Exxon Mobil Corp released dueling Permian Basin projections on Tuesday pointing to big increases in shale oil production.
  • Data from the American Petroleum Institute (API), an industry group, also showed larger-than-expected U.S. crude stockpiles.
  • The rise in North American production undermines supply cut efforts led by the Organization of Petroleum Exporting Countries.
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 slipped on Wednesday as bullish output forecasts by two big U.S. producers and a build in weekly U.S. crude stockpiles outweighed ongoing OPEC-led production cuts.

International Brent crude futures were at $65.36 per barrel at 0440 GMT, down 50 cents, or 0.8 percent, from their last settlement.

U.S. West Texas Intermediate (WTI) crude oil futures were also down 0.8 percent, or 45 cents, at $56.11 per barrel.

“Crude oil futures continue to demonstrate whippy trades as markets balance between OPEC-led cuts and the effects of rising U.S. production levels,” said Benjamin Lu, commodities analyst at Singapore-based brokerage firm Phillip Futures.

Increasingly event-driven trading was adding to market volatility, he added.

Chevron Corp and Exxon Mobil Corp released rival Permian Basin projections on Tuesday pointing to increased shale oil production.

If realized, the increases would cement the pair as the dominant players in the West Texas and New Mexico field, with one-third of Permian production potentially under their control within five years.

Data from the American Petroleum Institute (API), an industry group, also showed larger-than-expected U.S. crude stockpiles.

U.S. crude inventories rose by 7.3 million barrels in the week ending March 1 to 451.5 million, compared with analysts’ expectations for an increase of 1.2 million barrels, API said. Crude stocks at the Cushing, Oklahoma, delivery hub rose by 1.1 million barrels.

“An increase in U.S. crude inventories is weighing on oil prices and in the long term, concerns over rising oil production in the Permian region is keeping a lid on prices,” said Kim Kwang-rae, commodity analyst at Samsung Futures in Seoul.

Official data from the U.S. Department of Energy’s Energy Information Administration is due later on Wednesday.

The rise in North American production undermines supply cut efforts led by the Organization of Petroleum Exporting Countries (OPEC).

OPEC and its allies pledged to curb output by 1.2 million barrels per day, and they are likely to push back their decision whether or not to extend the output cut agreement to June from April, according to sources.

Meanwhile, the market is looking for further signs that the United States and China are making progress in talks to resolve their trade conflict.

U.S. Secretary of State Mike Pompeo said President Donald Trump would reject any trade deal that is not perfect, but added the White House would keep working on an agreement.