Economy

Oil prices drops below $61.5

Oil prices drops below $61.5

The producers known as OPEC+ started cutting production by 1.2 million barrels per day (bpd) from last month to avert a new supply glut, and OPEC has delivered nearly three quarters of its pledged cuts already, a Reuters survey showed last week.

The supply optimism helped U.S. West Texas Intermediate (WTI) and Brent crude reach 2019 highs on Monday. Front-month contract prices marked their lowest settlement Tuesday since January 29, according to FactSet data.

Tuesday's crude trading session saw the same fear that motivated the previous session - that of weak USA factory orders - cause prices to decline again, with West Texas Intermediate falling 90 cents, or 1.7 percent, at $53.66 per barrel, and Brent down 41 cents at $62.10 per barrel. It had traded up above $63 early Tuesday. Oil prices fell on Tuesday after a survey showed euro zone business expansion almost stalled in January.

Oil prices rose about 1 percent on Wednesday, boosted by signs of strong US demand for distillate products and tightening global crude supply, but gains were capped by a rising USA dollar and ongoing concerns about a global economic slowdown.

Venezuela exports around 1 million barrels of oil per day, about 1 percent of global production, of which half heads to the United States.

The Organization of the Petroleum Exporting Countries and its allies, including Russian Federation, agreed to production cuts effective this month to forestall an overhang. OPEC, excluding Iran, Libya and Venezuela, agreed to handle 800,000 barrels a day of those cuts. Shrinking Iraqi imports and deep output cuts by Saudi Arabia fueled the decline. The officials also said those oil-producing nations would debate the proposal during the week of February 18 Vienna, with the potential for a final deal when they meet in April.

"It would seem that the market is really not too anxious yet about the potential loss of Venezuelan barrels", analysts at JBC Energy wrote.

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“The 2019 demand outlook for oil is not great, while the prospects of increased shale supply and competition elsewhere could drive prices further lower, ” he said.

Moreover, Venezuela is struggling to export oil because of U.S. sanctions in support of "interim president" Juan Guaidó, who is challenging the incumbent Hugo Chávez. The political turmoil raises the risk of disruption to Venezuela's oil output.

The price of USA crude continues to rise and the outlook is still constructive on tight supplies and concerns about Venezuelan output.

"Anything out of the State of the Union that hints at the US-China deal not working out, or more anti-trade rhetoric would be a negative for energy prices as demand would be lower if global growth keeps being downgraded", said Alfonso Esparza senior market analyst, OANDA. Venezuela is an OPEC member and now holds the oil cartel's rotational presidency.

Despite hitting a 2-month high last week, crude oil prices have been chopping inside a tight range for several days as investors try to determine the key catalyst in the market at this time.

Elsewhere on Nymex, March gasoline US:RBG9 lost 0.4% to $1.426 a gallon, and March heating oil US:HOG9 declined by 0.5% to $1.898 a gallon.


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