US Sanctions, OPEC Cuts Create Rare Oil Price Shakeup

Cornelia Mascio
Febbraio 11, 2019

At 06:50 GMT, March WTI crude oil is trading $52.23, down $0.49 or -0.93% and April Brent crude oil is at $61.85, down $0.25 or -0.40%.

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are under pressure on Monday with the U.S. contract weakening the most. Traders are saying that the pressure is being fueled by worries over increasing US production after a report on Friday showed an increase in drilling activity in the United States.

USA sanctions on Venezuela, along with older sanctions on fellow OPEC member Iran, have also prevented crude prices from falling further.

The third key reason for Middle Eastern sour crude to trade higher than Brent is the uncertainty over whether the US will extend waivers (if any) to Iran's oil buyers when the current exemptions expire in early May.

WTI prices were also weighed down by the closure of the second largest crude distillation unit (CDU) at Phillips 66's Wood River, Illinois, refinery following a fire on Sunday.

The deal, effective from January, aims to cut 1.2 million barrels per day until the end of June to forestall a supply overhang.

The latest US Baker Hughes rig count showed an additional 7 rigs on stream in the week ending February 8, bringing the total to 854 operating rigs. -China trade talks overshadowed support from OPEC-led supply restraint. According to Reuters, the head of Russian oil giant Rosneft, Igor Sechin, has written to Russian President Vladimir Putin, saying Moscow's deal with OPEC to withhold output is a strategic threat and plays into the hands of the United States.

However, over the last hour, the black gold is seen making some minor recovery attempts on the back of an improvement in the appetite for the risk assets such as oil, equities etc, as the European traders remain optimistic over the progress on the US-China trade front. Furthermore, President Trump and President Xi Jinping are not expected to meet until after the March 2 deadline, which raises the possibility of increased tariffs on China.

First, OPEC is now on a mission to cut supply again in a bid to rebalance the market and lift prices, and many OPEC producers do pump and cut from medium to heavy grades.

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