The six months deal ending in June among OPEC+ oil cartel to cut supply has yielded measurable market results as oil prices have been shored up from a low of $50 in December to an average of $64 since January.
In December 2018, major oil producers reached a deal to cut oil production and boost the market, following two days of gruelling negotiations and despite opposition from the United States of America’s President Donald Trump. The Organisation of Petroleum Exporting Countries (OPEC) clinched the deal with allied oil-producing nations including Russia at its headquarters in Vienna.
Stable oil prices point to a far-reaching compliance among OPEC members. This has been helped along by US sanctions against Venezuela and Iran, which has created a slight deficit in global supply in the first quarter of 2019.
Brent crude oil futures were at $67.21 per barrel at 0559 GMT on Friday, virtually unchanged from their last close, and within a dollar of the $68.14 2019-high reached the previous day.
Yet, prices have been prevented from rising further by concerns that an economic slowdown will soon start denting growth in fuel demand.
US West Texas Intermediate (WTI) crude oil futures were at $58.58 per barrel, also close to their last settlement and not far off their 2019-high of $58.74 from the previous day. Since the start of the year, oil has rallied around a quarter since the start of the year.
“Oil continues to grind higher, in response to ongoing production cuts from the OPEC+ group of producers as well as another (output) slump from a blacked-out Venezuela,” Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank, said.
The alliance has taken 1.2 million barrels per day off the market for the first six months of 2019. The 15-member OPEC cartel has agreed to reduce its output by 800,000bpd, while Russia and the allied producers will contribute a 400,000bpd reduction.
OPEC ministers will meet at the group’s headquarters in Vienna, Austria, on April 17-18 to decide output policy.
Neil Atkinson, head of oil industry and markets division at the Paris-based International Energy Agency does not think OPEC+ will change its policy at the meet.
“Compliance with the deal among OPEC members is about 94 percent, so that is going quite well. The non-OPEC producers are coming in a little lower but the compliance rate is increasing also. I think the will look at the market and suppose their cuts have been successful so far” Atkinson said. “They have stabilised oil prices and from the point of view of the producers, they will think that is satisfactory.”
With OPEC+ withholding supply and U.S. sanctions preventing Iranian and Venezuelan oil from entering markets, global crude flow data in Re-definitive showed a slight supply deficit likely appeared in the first quarter.
Preventing oil from rising further have been concerns that economic slowdown that has gripped large parts of Asia and Europe, and which is showing signs of spilling into North America, will soon dent fuel demand growth.
But oil demand has held up well so far. Crude oil use in China, the world’s biggest importer, in the first two months of 2019 rose 6.1 per cent from a year earlier to a record 12.68 million bpd, official data showed this week.
“Oil demand concerns are overdone,” Goldman Sachs said in a note on Friday.
The US bank said January global crude oil demand growth was “nearly 2.0 million barrels per day, with strength visible in both emerging markets and developed economies.”
Goldman said, “current fundamentals will tighten physical markets further,” driving up spot Brent crude futures above $70 per barrel “as supply losses continue (and) demand growth beats low consensus expectations”.
