At last! Oil prices hit $65 amid OPEC cuts

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Brent crude oil prices hit 2019 highs above $65 per barrel on Friday, spurred by OPEC-led supply cuts and a partial shutdown of Saudi Arabia’s biggest offshore oil field.

Brent rose as far as $65.10, pushing past the $65 mark for the first time this year, before falling back to $64.77 by 0623 GMT. That was still 0.3 percent above the last close.

The international benchmark for oil prices is at a near three-month high and set for a 4.5-percent gain for the week.

U.S. West Texas Intermediate (WTI) crude futures were at $54.56 per barrel, up 15 cents, or 0.3 percent, from their last settlement.

Traders said prices were pushed up by the partial closure of Saudi Arabia’s Safaniyah, its biggest offshore oil field with a production capacity of more than 1 million barrels per day (bpd).

The shutdown occurred earlier this week, a source said, and it was not immediately clear when the field would return to full capacity.

The partial closure comes on top of voluntary supply cuts led by the Organisation of the Petroleum Exporting Countries (OPEC), of which Saudi Arabia the de-facto leader, aimed at tightening the market.

The group as well as some non-OPEC producers including Russia late last year agreed to cut crude output by a joint 1.2 million bpd. Top exporter Saudi Arabia said it would cut even more in March than the deal called for.

Russia has reduced its oil production by 80,000-90,000 bpd from its level in October, Moscow’s reference level for its cuts, the country’s energy minister said.

“Brent should average $70 per barrel in 2019, helped by voluntary (Saudi, Kuwait, UAE) and involuntary (Venezuela, Iran) declines in OPEC supply,” Bank of America Merrill Lynch said in a note.

It also expects “a 2.5 million barrels per day drop in OPEC supply from 4Q18 into 4Q19”.

Despite Friday’s bullish market, there are signs of a slowdown in demand.

“Maintenance season finally materialized this week, with (U.S.) refinery utilization decreasing by a sharp 480 basis points week-on-week to 85.9 percent,” U.S. investment bank Jefferies said on Friday.

Faltering economic growth is also a concern, with signs of a slowdown now abundant in Europe, Asia and the United States.

“Our macroeconomic view remains firmly bearish,” said commodities brokerage Marex Spectron.

Surging U.S. output may also undermine OPEC’s efforts to tighten the market.

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U.S. crude production rose by more than 2 million bpd last year, to 11.9 million bpd, making the United States the world’s biggest oil producer.

Most analysts expect U.S. output to rise past 12 million bpd soon, and perhaps even hit 13 million bpd by the end of the year.

Climbing U.S. shale oil supply, increasing spare capacity within OPEC and stagnating fuel consumption meant the medium-term oil price outlook was lower, BoAML said.

“We see growing downside risks to medium-term oil prices on rising U.S. supply and slower consumption,” the U.S. bank said. It expected Brent to range between $50 and $70 per barrel in the coming five years.Reuters/NAN

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