Strong demand, Saudi production cut comments buoy oil prices

oil prices
Oil prices rose after Saudi Arabia's energy minister, Khalid al-Falih made comments during a trip to India that the kingdom will lower its production to well below output caps between January and March.  Khalid al-Falih Twitter photo.

Oil prices rose after Saudi Arabia’s energy minister, Khalid al-Falih, made comments during a trip to India that the kingdom will lower its production to well below output caps during the first quarter of 2018.  Khalid al-Falih Twitter photo.

Oil prices hit a two-and-a-half week high

On Monday, oil prices hit a two-and-a-half week high after data showed strong demand for crude in the US.  As well, Saudi Arabia’s energy minister said that during the first three months of the year, the kingdom will cut production to well below OPEC’s output caps.

By 12:50 p.m. EST, Brent crude was up 51 cents to $67.55, down from an earlier high in the session of $67.90.  US WTI rose 54 cents to $64.09/barrel, after hitting a high on Monday of $64.24.  Both contracts rose to their highest levels since Feb. 7 on Monday.  Last week, Brent jumped 4 per cent and US WTI rose 3 per cent.

The Canadian Crude Index rose to $38.76 Monday.

Oil prices were buoyed after comments made by Saudi Arabia’s Energy Minister Khalid al-Falih while in India this weekend.

Falih said the kingdom’s crude production would come in well below its pledges made in support of the OPEC supply cut agreement.  He added that Saudi exports will average less than 7 million barrels per day in the first quarter of this year.

Falih says he hopes OPEC and its pact allies, including Russia, will relax output curbs in 2019 and create a permanent framework to stabilize oil markets after the cartel’s deal expires at the end of this year.

“A study is taking place and once we know exactly what balancing the market will entail, we will announce what is the next step. The next step may be easing of the production constraints,” Reuters reports Falih said while meeting in New Delhi on Saturday.

Ending the OPEC supply cut agreement may be a bearish development in the long term, warned Bob Yawger, director of energy futures at Mizuho.

Data from the US Energy Information Administration showing a surprise draw in US crude stocks underpinned oil prices on Monday.

“Last week’s inventory report wasn’t bullish, but it also wasn’t bearish. And that got the bulls excited,” Bill Baruch, president of Blue Line Futures told Reuters.

“Historically, this is usually a transitory kind of lull, where demand tapers back, we haven’t seen that yet.”

As well, demand in Europe rose due to a cold snap across the continent.  European refiners were encouraged to delay scheduled maintenance, which will likely boost demand and help cut profit-taking.

“Our view is demand will be strong enough, but we don’t see a big breakout,” Natixis oil analyst Joel Hancock told Reuters.  He added oil prices are expected to range between $60 to $70 this year.

However, hedge funds and money managers bumped up their bullish wagers on US crude oil for the first time in four weeks, according to data on Friday.

Another factor boosting oil prices was a disruption in production at the El Feel oilfield in Libya.  The National Oil Corporation declared a force majeure on the 70,000 barrel per day field after a protest by the operation’s guards closed the oilfield.


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