United States oil prices edge up as market eyes tighter supply

Gladys Abbott
February 7, 2019

Higher American output is threatening to offset cuts by the Organization of Petroleum Exporting Countries and its allies.

Tuesday was also characterized with what is now a hallmark of trader behaviour: a partial mitigation of losses based on news that can hardly be qualified as good in the social sense of the word but nonetheless offsets worries about rising crude output and weakening demand, ie: the USA sanctions against Venezuela, which are putting a stranglehold on the Bolivian republic's troubled oil production sector.

"Fresh U.S. sanctions on the country could see 0.5-1 percent of global supply curtailed", said Vivek Dhar, mining and energy analyst, Commonwealth Bank of Australia.

“The plus side for USA producers is that they get the higher price benefit without cutting their own production.”.

"The ban. dramatically ramps up the sanctions to a global level and could potentially result in a loss of most Venezuelan output", French bank Societe Generale said in a note published on Wednesday.

U.S. crude oil refinery inputs increased during the week ending February 1, the U.S. Energy Information Administration (EIA) said on Wednesday.

West Texas Intermediate crude for March delivery slipped 0.4 percent to $53.81 a barrel on the New York Mercantile Exchange as of 10:50 a.m. London time.

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Crude futures earlier posted around two-month highs. They closed down 1.3 percent on Monday, after earlier touching their highest since November 21 at $55.75 a barrel.

About a dozen tankers carrying over 7 million barrels of Venezuelan crude and products were anchored this week at the U.S Gulf Coast waiting for directions on how to pay for the cargoes following the sanctions, according to Refinitiv Eikon data.

"The fact that USA crude oil and gasoline stocks rose more sharply than expected, as reported by the API after close of trading yesterday, is weighing on prices", said Carsten Fritsch, analyst at Commerzbank. The United States is now the world's largest oil producer, ahead of traditional top suppliers Russian Federation and Saudi Arabia.

The producers known as OPEC+ began cutting production from last month to avert a new supply glut and OPEC has delivered nearly three-quarters of its pledged cutback already, according to a Reuters survey.

Further gains in the price of U.S. crude oil are possible as the recovery that began in late December previous year shows no sign of reversing just yet.

Market participants are also watching for developments surrounding the U.S. -China trade dispute have also weighed on the market. Senior U.S. and Chinese officials are poised to start another round of trade talks next week. Prices are likely to remain rangebound, or drift sideways to lower until the US and China reach a trade deal.

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