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Home / Did you know / Oil prices rise world over on OPEC output cuts, as US sanctions bite

Oil prices rise world over on OPEC output cuts, as US sanctions bite

February 12, 2019:

International Brent crude futures were up 50 cents, or 0.8 per cent, at $62.01 per barrel.

OPEC
OPEC

Oil prices rose on Tuesday amid OPEC-led supply cuts & U.S. sanctions against Iran & Venezuela, although analysts expect surging U.S. production & concerns over economic growth to keep markets in check.

U.S. West Texas Intermediate (WTI) crude oil futures were at $52.78 per barrel at 0329 GMT, up 37 cents, or 0.7 per cent, from their last close. The ongoing closure of parts of the Keystone pipeline that brings Canadian oil into the United States also helped prop up WTI, traders said.

International Brent crude futures were up 50 cents, or 0.8 per cent, at $62.01 per barrel.

Analysts said markets are tightening amid voluntary production cuts led by the Organization of the Petroleum Exporting Countries (OPEC) & because of U.S. sanctions on Venezuela & Iran. But some said supply-side risks were not receiving enough focus.

High oil prices put OPEC back on U.S. lawmakers radar.

U.S. oil prices hit their highest level since November 2014 on Tuesday & Brent crude was also near a four-year peak reached the previous day, with markets preparing for tighter supply once U.S. sanctions against Iran kick in next month. As Sonia…

“We believe that oil is not pricing in supply-side risks lately as markets are currently focused on U.S.-China trade talks, ignoring the risks currently in place from the loss of Venezuelan barrels,” U.S. bank J.P. Morgan said in a weekly note.

Should U.S.-China talks to end trade disputes between the two nations have a positive outcome, the bank said oil markets would “switch attention from macro concerns impacting future demand growth to physical tightness & geopolitical risks impacting immediate supply”.

With OPEC engaged in supply management & the Middle East entangled in political conflicts while production outside the group surges, Bank of America Merrill Lynch said OPEC’s global market share would fall as its outright output drops to 29 million barrels per day (bpd) in 2024 from 31.9 million bpd in 2018.

Growing U.S. supply & a potential economic slowdown this year could cap oil markets. “The worries of oversupply stemming from the U.S. will likely remain a dominant theme as we approach the warmer months,” said Edward Moya, market analyst at futures brokerage OANDA.

Industrial growth remains subdued at 2.4 pc; inflation dips to 19-month low

U.S. bank Morgan Stanley said the surge in U.S. crude oil production, which tends to be light in quality & which rose by more than 2 million barrels per day (bpd) last year to a record 11.9 million bpd <C-OUT-T-EIA>, had resulted in overproduction of gasoline.

“Light crudes naturally yield more gasoline, & together with relatively modest demand-growth, this has driven gasoline stocks sharply higher and crack spreads sharply lower in recent months,” Morgan Stanley said.

Refining profits for gasoline have plunged since mid-2018, going negative in Asia &  Europe, amid tepid demand growth & a surge in supply.

As a result, Morgan Stanley said, “low refining margins & weaker economic data means oil prices can rally only so much (and) we continue to see modest upside for Brent to $65 per barrel in the second half (of 2019)”.

Bank of America also warned of “a significant slowing in growth globally”, adding that it expected Brent & WTI to average $70 per barrel &  $59 per barrel respectively in 2019, & $65 per barrel and $60 per barrel in 2020.
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