Crude oil prices are approaching their highest levels for 2019, backed by the Organization of the Petroleum Exporting Countries (OPEC) production cuts and the US sanctions against Iran and Venezuela.
However, the growing US production and expectations for the slowdown in economic growth keep the gains limited.
The futures on US crude oil WTI with delivery in March rose by 0.12% to 56.16 USD per barrel. Brent oil, however, lowered its price by 0.20% to 66.32 USD per barrel, although it remained close to its highest levels for the year, reached on Monday.
The crude oil prices are still backed by shrinking production in OPEC with Saudi Arabia even expected to cut more supplies in Asia in March as part of efforts to tighten markets. The OPEC, as well as some non-cartel producers like Russia, agreed at the end of last year to cut production by 1.2 million barrels per day to prevent serious market saturation.
It seems that Saudi Arabia will produce in the first three quarters of 2019 less than its target of 10.31 million barrels per day agreed at the OPEC meeting on December 7.
Due to the reduced supply, the analysts from the French bank BNP Paribas expects oil prices to rise in the third quarter of 2019 to 73 USD per barrel for the Brent and 66 USD per barrel for the WTI.
Another key support for crude oil prices continues to be sanctions against Iran and Venezuela.
Despite the sanctions, the exports of Iranian crude oil were higher than expected in January – an average of about 1.25 million barrels per day. Many analysts expected Iran’s exports to fall below 1 million barrels per day after the US sanctions were imposed last November.
Meanwhile, crude oil production in the US has increased by more than 2 million barrels per day in 2018 to a record 11.9 million barrels per day thanks to the booming production of shale oil, which is expected to continue to grow. According to the analysts, the rising US output may lead to lower oil prices by the end of the year, with the Brent price down to an average of 67 USD per barrel in the fourth quarter and WTI trading around 61 USD per barrel.
China seeks to limit its dependence on oil imports
Oil discovery in a remote corner of northwestern China could trigger a surge in shale drilling, benefiting service companies and providing a needed output boost for the world’s biggest importer.
PetroChina has managed to achieve a daily yield of 100 tonnes of oil, or 733 barrels, from the Jimsar field in Xinjiang province, suggesting that shale oil can have real trade potential for the country.
“We believe that the Jimsar field will revolutionize shale oil in China”, says the analyze of Morgan Stanley.
China has had some success in producing shale gas, but advancing on shale oil would be a particular help to the world’s largest crude importer.
The potential shale boom in the strongest Asian economy is likely to be considerably weaker than this type of fossil fuel that is produced in the United States. Morgan Stanley expects shale oil production in China to reach a level of 100,000-200,000 barrels per day by 2025, or just a small portion of the millions of barrels that the American oil industry is spitting every day.
According to the US Energy Information Administration, the seven key shale deposits in the United States generated 8.117 million barrels per day in January, and this month they are expected to register a total of 62,000 barrels per day.
As part of government pressure to increase domestic energy supplies, China National Petroleum Corporation (CNPC) and Sinopec are boosting investment to boost local oil and gas production and speed up light oil drilling in Western China.
The oil demand in China continues to grow, while domestic production slows down in recent years due to the depletion of conventional oil fields. This has forced the country to increase imports of significantly more expensive oil, making it the largest importer of this resource on a global scale.