Oil prices edge lower, tightening supply outlook supports
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Crude oil prices edged lower on Monday after sharp gains during the previous session but were supported by expectations of shrinking supply and signs that China-US trade tensions could ease. International Brent crude oil futures on Monday were down 20 cents, or 0.32% at 0339 GMT to $62.54 a barrel, after closing up 3.14% in the previous session to their highest close since Nov 21.
US West Texas Intermediate (WTI) futures were at $55.13 per barrel, down 13 cents, or 0.24%, from their last settlement. WTI settled 2.73% higher in the last session at its highest close since Nov 19.
Output declines from the Organization of the Petroleum Exporting Countries (OPEC) as they make good on their pact to curb a supply overhang were compounded by falling US oil rig counts and sanctions on Venezuelan oil sales.
“While Venezuela’s output reportedly rose last month, fresh US sanctions on the country could see 0.5 to 1% of global supply curtailed,” said Vivek Dhar, commodities analyst for Commonwealth Bank of Australia in a note on Monday.
The sanctions will sharply limit oil transactions between Venezuela and other countries and are similar to those imposed on Iran last year, experts said after examining details posted by the Treasury Department.
OPEC oil supply fell in January by the largest amount in two years despite sluggish production declines from Russia, according to a Reuters survey.
“The collapse in oil prices late last year has resulted in more cautious spending by US oil explorers,”
However, Russian oil output in January missed the target for the output cuts, Energy Ministry data showed on Saturday. Production last month declined to 11.38 million barrels per day (bpd), but that was only down by 35,000 bpd from its October 2018 level that is the baseline for the pact.
Russian Energy Minister Alexander Novak has said the country’s overall cuts from the October baseline would total 50,000 bpd in January. Russia has pledged to reduce oil output by 230,000 bpd from October.
US energy firms last week cut the number of oil rigs operating to their lowest in eight months as some drillers followed through on plans to spend less on new wells this year.
“The collapse in oil prices late last year has resulted in more cautious spending by US oil explorers,” said Dhar.
Meanwhile, hopes for thawing China-US relations have also helped ease concerns over slowing economic growth.
“While the US and China have yet to reach a deal, markets were buoyed by reports that they have made significant progress,” ANZ Bank said in a research note.
US President Donald Trump last week said he would meet with Chinese President Xi Jinping, perhaps twice, in the coming weeks to try to seal a comprehensive trade deal with Beijing, but acknowledged it was not yet clear whether a deal could be reached.
Questions & Answers
Q.What factors are contributing to the expectation of shrinking oil supply?
What factors are contributing to the expectation of shrinking oil supply?
Expectations of shrinking supply are supported by OPEC output declines, falling US oil rig counts, and sanctions imposed on Venezuelan oil sales. These actions aim to curb a global supply overhang and have impacted production levels.
Q.How did US oil rig counts change recently, and what was the reason for this?
How did US oil rig counts change recently, and what was the reason for this?
US energy firms reduced the number of operating oil rigs to their lowest in eight months last week. This reduction occurred as some drillers are spending less on new wells following the collapse in oil prices late last year.
Q.How much has OPEC oil supply fallen, and is Russia meeting its reduction targets?
How much has OPEC oil supply fallen, and is Russia meeting its reduction targets?
OPEC oil supply fell by the largest amount in two years in January, though Russia's January output only declined by 35,000 bpd from its October baseline, missing its pledged target for the month.