Oil prices up as Saudis say OPEC pact to continue, US crude stocks fall

oil prices
Oil prices rose on Wednesday after Saudi Arabia reportedly said it would like to see oil hit $100/barrel and data from the US Energy Information Administration showed US crude stocks fell last week.  Repsol photo.

Oil prices rose on Wednesday after Saudi Arabia reportedly said it would like to see oil hit $100/barrel and data from the US Energy Information Administration showed US crude stocks fell last week.  Repsol photo.

Middle East tensions, possible US sanctions against Iran, falling Venezuelan output also boost oil prices

US oil prices rose by 2 per cent on Wednesday after government data showed crude stocks in the United States declined last week and Saudi Arabia reportedly said it would like to see the price of oil increase to about $100 a barrel.

According to a Reuters report, industry sources say Saudi Arabia is hoping oil prices will rise to somewhere between $80 to $100/barrel.  The sources add that the kingdom will not push any changes to the OPEC supply cut agreement, even though oil markets have almost rebalanced, the initial goal of the pact.

By 1:35 p.m., EDT, Brent crude futures were up $1.21 to $72.79/barrel.  Earlier in the session, Brent hit $73.12/barrel.  US West Texas Intermediate crude futures rose 2 per cent, or $1.33, to $67.84/barrel, down from a session high of $68.45, the highest since late 2014.  The Canadian Crude Index increased by 45 cents to $49.53/barrel, falling from a session high of $50.49.

Data from the US Energy Information Administration showed US crude stockpiles fell last week.  Crude inventories declined by 1.1 million barrels, mostly due to a decline of 1.3 million barrels per day (b/d) in net imports.  Gasoline and distillate stocks dropped more than anticipated on stronger demand.

“This may be one of the most bullish reports in some time, with the across-the-board declines in inventories,” John Kilduff, a partner at Again Capital Management told Reuters.

“Beyond the headlines, gasoline demand was very strong, virtually summer-like, and crude oil exports are climbed back toward 2 million b/d at 1.75 million.”

Oil prices were also supported by widespread anticipation that production cuts outlined amounting to 1.8 million b/d in the OPEC supply cut agreement will be continued.

The cartel reported that compliance with the deal amongst OPEC members reached 159 per cent in March, with Saudi Arabia, and Angola substantially beating their targets set out in the pact.  As well, OPEC member Venezuela has seen its production plummet due to ongoing political and social crises.

On Friday, OPEC’s ministerial committee which monitors the supply cut agreement will meet in Jeddah, Saudi Arabia.

“Despite an oil price of over $70 per barrel and the fact that the oversupply has been eliminated, a phase-out of the production cuts will not be on the agenda,” Commerzbank oil analyst Carsten Fritsch told Reuters.

Middle East tensions which could lead to supply disruptions, including the Trump administration’s threat to renew sanctions against Iran, as well as significant declines in Venezuelan production have boosted oil prices.

ING bank said in a note to clients that Brent rose to over $70/barrel in April “due to geopolitical risks along with some fundamentally bullish developments in the market”.

The bank boosted its average 2018 price forecast for benchmark Brent to $66.50 from $60.25 and its 2018 US WTI forecast to $62.50 from $57.75.  Next year, however, ING predicts oil prices to fall due to rising US output.

Echoing the bearish prediction, the International Monetary Fund forecast that in 2019, Brent will be valued at around $58.24/barrel.  By 2023, the IMF predicts the price for Brent will drop to $53.60/barrel due to a global economic slowdown.

IMF predictions do not calculate in a possible worst case scenario where the US and China continue their trade spat.  The IMF did note the dangers of protectionist policies to the global economy.

Chief Economist with the IMF, Maurice Obstfeld said the US should be wary of undertaking a trade war as it will only harm its economy.

He added that the fact that “major economies are flirting with trade war at a time of widespread economic expansion may seem paradoxical – especially when the expansion is so reliant on investment and trade,” Obstfeld said, adding that a trade war would “actually widen the U.S. current account deficit.”






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