Oil prices rose on Tuesday, as OPEC’s de facto leader Saudi Arabia appeared to deepen the group’s supply cuts aimed at tightening markets, although gains were capped by the ongoing surge in U.S. supply and worries over the global economy.
U.S. West Texas Intermediate (WTI) crude oil futures were at $57.08 per barrel at 0746 GMT, up 29 cents, or 0.5 percent, from their last settlement.
Brent crude futures were at $66.82 per barrel, up 24 cents, or 0.4 percent.
Bank of America Merrill Lynch said despite economic headwinds “we still see Brent prices averaging $70 per barrel this year and expect WTI to lag, averaging $59 per barrel in 2019.”
Oil prices have been receiving broad support this year from supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and non-affiliated allies like Russia aimed at tightening markets.
Saudi Arabia plans to cut its crude oil exports in April to below 7 million barrels per day (bpd), while keeping its output “well below” 10 million bpd, a Saudi official said on Monday. That compares to production of around 10.14 million bpd in February.
“Owing to the … headline yesterday that Saudis have pledged deeper-than-agreed production cuts for April … is the reason we saw a rally,” said Matt Stanley, a broker at Starfuels in Dubai.
Traders also pointed to the political and economic crisis in OPEC-member Venezuela as a driver for oil prices.
Venezuela’s opposition-run congress on Monday declared a “state of alarm” over a five-day power blackout that has crippled the country’s oil exports and left millions of citizens scrambling to find food and water.
(Graphic: Venezuela crude oil shipments – https://tmsnrt.rs/2NXpv3C)
SURGING U.S. OUTPUT
Offsetting OPEC efforts to prop up prices and the impact of disruptions like Venezuela is a surge in U.S. oil supply.
The United States will drive global oil supply growth over the next five years, adding another 4 million bpd to the country’s already booming output, the International Energy Agency said on Monday.
U.S. crude oil output will rise nearly 2.8 million bpd, growing to 13.7 million bpd in 2024 from an average of just under 11 million bpd in 2018, the IEA said, making the United States by far the biggest oil producer in the world.
With U.S. production booming, the country needs to import less and is increasingly turning abroad to sell surplus oil.
“The decrease in net crude oil imports (December, 2018) was driven primarily by lower imports from Saudi Arabia (down 160,000 bpd month-on-month) and higher exports to Asian countries such as South Korea (up 200,000 bpd month-on-month), China (up 90,000 bpd month-on-month) and India (80,000 bpd month-on-month),” Barclays bank said.