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Economy, production cuts, shale worries, prop up oil prices

The oil market currently dictates that prices rise, but it could all change

WTI bounced above $62 per barrel in early trading on Tuesday with Brent closing in on the $70-per-barrel mark Saudi has every incentive to produce oil but it isn’t, adhering to an OPEC agreement to take 1.2 million barrels daily off the market from Jan 1, 2019 The 11 OPEC members bound by the new agreement achieved 135% of pledged cuts, up from 101% in February

WTI bounced above $62 per barrel in early trading on Tuesday with Brent closing in on the $70-per-barrel mark.

Unlike Bitcoin which jumped 20% in value in under 1 hour yesterday for no specific reason, the slow but steady rise of oil prices for the 4th day in a row might have good rationale behind it.

No recession?

Oil rose to a 2019 high on Tuesday. 

“Crude oil hit fresh 2019 highs this week, pushed up by… …fewer concerns about the global economy,” says OilPrice.com.

But a global recession is still on the minds of top economists. International Monetary Fund Managing Director Christine Lagarde said yesterday: “…the weather is increasingly unsettled,” adding that since January, global economic growth lost further momentum.

“Only two years ago, 75% of the global economy experienced an upswing. For this year, we expect 70% of the global economy to experience a slowdown in growth.”

Production Cuts & Venezuela troubles 

Saudi has every incentive to produce oil but it isn’t, adhering to an OPEC agreement to take 1.2 million barrels daily off the market from Jan 1, 2019.

Saudi Aramco’s upcoming dollar-denominated bond reveals that the Saudi oil company can produce oil at a cost as low as $2.80 per barrel.  

A Reuters survey shows that OPEC’s production fell to a four-year low in March, as Saudi Arabia cut below its requirement and Venezuela posted deeper supply losses.

“OPEC produced 30.40 million bpd in March, a decline of 280,000 bpd from the month before. Notably, Venezuela saw 150,000 bpd go offline, a volume that will not easily be recovered,” said Reuters.

“The survey suggests that Saudi Arabia and its Gulf allies are pressing ahead with even larger supply cuts than called for by OPEC’s latest deal, shrugging off pressure from U.S. President Donald Trump to increase supply.”.

Reuters added that In March, the 11 OPEC members bound by the new agreement achieved 135% of pledged cuts, the survey found, up from 101% in February.

US Shale shutdowns 

The EIA released new monthly data on March 29, which revealed a decline in US output of about 90,000 bpd between December and January, evidence that shale drillers slammed on the breaks and will be forced to collectively cut spending by more than 10% this year after a dreadful Q4 2018.

“U.S. shale shareholders have run out of patience with unprofitable drilling, and are demanding returns, which is tightening the screws on less competitive companies and forcing spending cutbacks across the board,” said Reuters.

“We expect Brent to move into the $70-80 a barrel range,” said UBS’s Giovanni Staunovo, according to the Wall Street Journal.

Future prices expectations

Brent futures rose 35 cents, or 0.5%, to $69.72 while West Texas Intermediate crude rose 22 cents, or 0.4% to $62.80.

According to Marketwatch, optimism has spread through investment banks, with many bumping up their price predictions for 2019, quoting a Wall Street Journal poll.

Brent will average just over $68 a barrel this year, according to The Wall Street Journal’s query of 12 investment banks, up from $67 estimates in February.

WTI stays the same at an average nearly $60 a barrel.

“The banks predicted prices will continue to rise through the April-June quarter, before falling back toward the end of 2019,” reported MarketWatch.