Commodities

Oil dips from 2019 highs as rising US supply erodes OPEC cuts

SINGAPORE | Updated on February 20, 2019 Published on February 20, 2019

Oil prices have been supported by supply cuts led by the OPEC. File Photo

Oil prices slipped from 2019 highs on Wednesday as soaring US production and expectations of an economic slowdown undermined efforts led by producer club OPEC to cut supply to tighten global markets.

US West Texas Intermediate (WTI) crude oil futures were at $55.84 per barrel at 0126 GMT, down 25 cents, or 0.5 per cent, from their last settlement. WTI hit a 2019 high of $56.33 earlier this week.

International Brent crude futures were down 27 cents, or 0.4 per cent, at $66.18 per barrel after hitting a 2019 high of $66.83 per barrel on Monday.

Oil prices have been supported by supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC).

OPEC-member and top crude exporter Saudi Arabia is expected to reduce shipments of light crude oil to Asia in March as part of the effort to tighten markets.

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 swelling.

“We have lowered Saudi crude oil output in line with announcements ... (and) are now assuming that Saudi Arabia will produce in the first three quarters of 2019 less than the 10.31 million bpd target it agreed to at the December 7 OPEC, non-OPEC meeting,” French bank BNP Paribas said in a note.

Because of the cuts, BNP said it expected oil prices “to rally through Q3 2019”, with Brent to average $73 per barrel by then and WTI to average $66.

Another key oil price driver has been US sanctions on oil exporters Iran and Venezuela.

Despite the sanctions, Iran's crude exports were higher than expected in January, averaging around 1.25 million bpd, according to Refinitiv ship tracking data. Many analysts had expected Iran oil exports to drop below 1 million bpd after the imposition of US sanctions last November.

“News that Iran's exports had risen tempered Brent's (earlier) gains,” said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.

SHALE BOOM, WEAKER ECONOMY

Standing against the supply cuts and sanctions is US crude output, which soared by more than 2 million bpd in 2018 to a record 11.9 million bpd, thanks to booming shale oil production, which the Energy Information Administration on Tuesday said was expected to keep rising.

BNP Paribas said surging US output would feed into lower oil prices towards the end of the year, with Brent to dip to an average of $67 a barrel by the fourth quarter and WTI to average $61.

“US oil production growth, driven by shale, will be increasingly exported in greater volumes to international markets while the global economy is expected to witness a synchronised slowdown in growth,” the bank said.

Published on February 20, 2019
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