Oil prices rise as OPEC cuts more output than promised
Oil prices rose on Tuesday to levels not seen since December 2014 on the OPEC supply cut pact and analysts’ expectations of a decline in US crude stocks.
By 3:02 p.m. EST, Brent crude had risen by 95 cents to $68.73/barrel, topping levels last seen in May 2015 and US WTI was up $1.16 to $62.89, the highest since December 2014.
The Canadian Crude Index sat at $40.21, up $1.02.
“You’re so long this market at this point, you could certainly get more interest at these levels,” Rob Haworth, senior investment strategist at U.S. Bank Wealth Management told Reuters.
“This is a little more confirmation of what speculators have been looking for and after tomorrow’s (U.S. government inventory) report, we’ll see if they look to do some profit taking.”
OPEC and other participants in the cartel’s pact to cut global oil supplies have reduced their output by more than expected, according to Reuters. The results are most apparent in the United States, the world’s largest and most transparent oil market.
Reports to be released by the American Petroleum Institute and the US Energy Information Administration are expected to show a decline in US crude stocks. The API releases its report on Tuesday afternoon while the EIA releases its data on Wednesday morning.
“We expect oil demand growth to outpace non-OPEC supply growth in both 2018 and 2019,” Reuters reports Standard Chartered analysts said in a note.
“In our view, the back of the Brent and WTI curves are both still underpriced. We do not think that prices below $65 per barrel are sustainable into the medium term.”
Despite the boost in prices, some oil producers are concerned rising prices will give rival suppliers incentive to drill more. On Tuesday, Iran said OPEC members are not thrilled about the rising prices.
But, there is no sign that OPEC will loosen its supply restraint policy. A senior OPEC source from a major Middle Eastern crude producer told Reuters that this could change if there were significant and sustained production disruptions from Iran and Venezuela.
Venezuela is teetering on the verge of economic collapse which has led to involuntary production cuts in the South American nation and political unrest in Iran continues.
In the United States, crude production is expected to rise to 970,000 barrels per day (b/d) in 2018 and increase to 10.85 million b/d in 2019, according to a monthly report by the EIA.
Some analysts are concerned that such a rise in production could force OPEC deal kingpins Russia and Saudi Arabia to reconsider their production cutbacks for fear of losing market share.
“I am now on the lookout for bearish technical patterns to emerge on oil prices as I believe they will struggle to go north of $65-$75 per barrel given the above fundamental consideration,” Fawad Razaqzada, technical analyst for Forex.com told Reuters.
“If WTI were to go back below the 2017 high of $60.48, which was hit late in the year, and the 2018’s opening price of $60.09, then the technical outlook would turn bearish on oil. But for now, the bullish trend remains intact as prices remain above key supports.”