Oil slips away as surging U.S. supply undermines OPEC cuts

Oil prices slipped away from 2019 highs on Wednesday, with surging U.S. supply and slowing economic growth tempering upward pressure from supply cuts led by producer club OPEC and from Washington’s sanctions on Iran and Venezuela.

U.S. West Texas Intermediate (WTI) crude oil futures hit 2019 highs of 56.39 dollars per barrel on Wednesday but had slipped back to 56.15 dollars per barrel by 0523 GMT, which was slightly above their last settlement.

International Brent crude futures were at 66.33 dollars per barrel, down 12 cents, or 0.2 per cent, from their last close, although still not far off their 2019 high of 66.83 dollars per barrel from Monday.

Oil prices have been supported by supply cuts led by the Organisation of the Petroleum Exporting Countries (OPEC).

OPEC-member and top crude exporter Saudi Arabia is expected to reduce shipments of light crude oil to Asia in March as part of the effort to tighten markets.

OPEC as well as some non-affiliated producers such as Russia agreed late last year to cut output by 1.2 million barrels per day (bpd) to prevent a large supply overhang from swelling.

“We have lowered Saudi crude oil output in line with announcements … (and) are now assuming that Saudi Arabia will produce in the first three quarters of 2019 less than the 10.31 million bpd target it agreed to at the Dec. 7 OPEC, non-OPEC meeting,” French bank BNP Paribas said in a note.

Because of the cuts, BNP said it expected oil prices “to rally through Q3 2019”, with Brent to average 73 dollars per barrel by then and WTI to average 66 dollars.

Another key oil price driver has been U.S. sanctions on oil exporters Iran and Venezuela.

In spite of the sanctions, Iran’s crude exports were higher than expected in January, averaging around 1.25 million bpd, according to Refinitiv ship tracking data.

Many analysts had expected Iran oil exports to drop below one million bpd after the imposition of U.S. sanctions last November.

Standing against the supply cuts and sanctions is U.S. crude output, which soared by more than two million bpd in 2018 to a record 11.9 million bpd, thanks to booming shale oil production, which the Energy Information Administration on Tuesday said was expected to keep rising.

BNP Paribas said surging U.S. output would feed into lower oil prices toward the end of the year, with Brent to dip to an average of 67 dollars a barrel by the fourth quarter and WTI to average 61 dollars.

“U.S. oil production growth, driven by shale, will be increasingly exported in greater volumes to international markets while the global economy is expected to witness a synchronized slowdown in growth,” the bank said.