Crude oil futures rose on Friday amid a sharp drop in Saudi Arabian exports | Finance and Markets

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Crude oil futures rose on Friday amid a sharp drop in exports by OPEC’s leader Saudi Arabia.

Brent crude oil futures appreciated by 0.35 USD to 71.97 USD per barrel. The Brent variety recorded a weekly growth of 0.6%.

The US light crude oil (WTI) futures reached rose by 0.24 USD to 64.00 USD per barrel. WTI futures gained around 0.2% for the week.

WTI futures

Crude oil exports from Saudi Arabia dropped by 277,000 barrels to just under 7 million barrels per day in February.

Crude oil prices rose by more 35% this year due to oil cuts by OPEC producers, the US sanctions against Iran and Venezuela, and escalating military conflicts in Libya.

US oil stockpiles

The US crude oil stockpiles fell unexpectedly last week as imports dropped, while gasoline and distillate inventories decreased less than forecasts, according to the latest report of the Energy Information Administration.

Crude oil inventories fell by 1.4 million barrels in the week to April 12, compared with analysts’ expectations for an increase of 1.7 million barrels. A majority of the decline came from the Midwest region, where inventories fell 2.4 million barrels to 135.3 million barrels.

Net US crude imports fell last week by 659,000 barrels per day.

Crude stocks at the Cushing, Oklahoma, delivery hub for US crude futures fell by 1.54 million barrels, EIA said.

The US crude oil refinery inputs averaged 16.1 million barrels per day during the week ending April 12, 2019. Gasoline production decreased last week, averaging 9.9 million barrels per day, while the distillate fuel production decreased last week, averaging 4.8 million barrels per day.

OPEC risks losing everything with too high oil prices

After managing to increase oil prices by shrinking production volumes, the OPEC now risks losing everything by appreciating the commodity too much.

In the first quarter, the coordinated contraction in the OPEC countries and their allies helped the oil to rally, crossing the threshold of 70 USD per barrel.

Saudi Arabia, the most influential member of the organization, has made it clear that it is determined to keep the supplies low. This, however, they risk repeating the events of 2018 when the contraction of production led to a four-year peak in oil prices.

It seems the OPEC+ group is over-tightening the market. If the organization continues with cuts, the global oil supplies will shrink by nearly 1 million barrels per day in the third quarter, which is the sharpest decline in nearly two years. However, the parties will take a new decision on the quota deal only in June, when it is the next meeting with their allies.

Limiting the supply on the market can go even further. This may be in the form of a fresh outbreak of the Libyan conflict, continuing contraction in Venezuela, a possible decision of the US to tighten sanctions against Iran further.

OPEC is at a major crisis. It can easily send crude oil prices to levels that can be criticized by the White House – Saudi Arabia’s most important political partner.

The higher prices also risk relations with Russia. Russian President Vladimir Putin said last week that he likes the current oil prices and it is still too early to decide whether the production needs further restrictions in the second half of the year.

To avoid the model from last year, Saudi Arabia may slightly increase production and stop rising prices. At present, the Middle East country has shrunk yields far beyond what is required under the OPEC+ agreement. This means that the country can safely increase production without disturbing the deal.

The authorities in Riyadh are facing strong pressure at home. The plan of Prince Mohammad Bin Salman Al Saud for radical economic transformation relies on oil prices of 80 USD per barrel.

In April 2018, when oil was traded at a price of about 70 USD per barrel, the authorities in Riyadh made it clear that they could leave his value even higher. This has led to yet another criticism from the US president, and although Saudi originally rejected his concerns, they subsequently increased the yield. Growth has reached such an extent that it sent the price of oil to a level of less than 50 USD per barrel.

However, Saudi Arabia is likely to refrain from any action, at least not before the US decision at the beginning of next month on how to proceed with sanctions on Iranian exports.

But, despite Trump’s decision for Iran, continued shrinking production and supply bottlenecks may force Saudi Arabia to face the same cycle of ups and downs in prices same as last year.