OPEC Cuts Push Oil Prices Above 2 percent

Oil prices were up more than 2 percent on Tuesday, driven by voluntary output reductions headed by the Organization of the Petroleum Exporting Countries (OPEC).

Global benchmark Brent oil futures rose 2.9 percent to $63.30 per barrel, US West Texas Intermediate (WTI) crude oil futures added 3 percent to $54.01 a barrel.

Markets are tightening as result of production cuts, which have been in effect since the start of January, led by the OPEC and allies including Russia intended to stave off a global glut in supplies.

Top oil exporter and OPEC’s de facto leader Saudi Arabia stated that it plans to lessen output by about 9.8 million barrels per day (bpd) in March, or over half a million bpd more than it initially decided.

Saudi Energy Minister Khalid al-Falih announced the move, as the kingdom aims for higher oil prices to help finance an economic transformation plan. Last month, the country pumped approximately 10.2 million bpd, below the 350,000 bpd recorded on December.

The producer group’s monthly oil market data released on Tuesday showed its production had declined by 797,000 bpd last month to 30.81 million bpd.

Oil prices also received a boost after investors’ risk-appetite improved on news of US lawmakers establishing a tentative agreement to avoid another government shutdown and as the world’s two largest economies offered positive signals about their ongoing trade talks.   

Trade Talks Optimism

US and Chinese officials expressed confidence that the latest round of discussions, which started in Beijing on Monday, would help them find a solution to mitigate their months-long trade war that has weighed on global growth.

The two countries seek to seal an agreement before the self-imposed March 1 deadline, without which the 10 percent US tariffs on $200 billion worth of Chinese imports will more than double to 25 percent.

However, oil markets were uncertain about broader supply due to mounting US crude output, fighting near Libya’s biggest oil field, sanctions on Venezuela, and anxiety over whether Washington will approve more waivers to import Iranian oil.

A New York-based investment bank said they believe oil is not pricing in supply-side risks lately as markets are currently focused on US-China trade talks.

If negotiations turned out successful, the bank stated that oil markets would switch attention from macro concerns impacting future demand growth to physical tightness and geopolitical risks impacting immediate supply.

Any setback in economic expansion could limit oil markets.

Another US bank also warned of a significant slowing in world growth, adding that it sees Brent and WTI to average $70 and $59 per barrel respectively this year, and $65 and $60 in 2020.

Also on the radar is the American Petroleum Institute’s (API) fresh weekly report on US commercial crude supplies, while weekly data from the US Energy Information Administration (EIA) is scheduled to be released on Wednesday.

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