Venezuela’s struggles support oil, but surge in US supply looms

Singapore — Oil prices were stable on Friday, supported by Venezuela’s struggles to meet its supply obligations and by ongoing output cuts led by producer cartel Opec, although surging US crude output was looming over markets.

Brent crude futures, the international benchmark for oil prices, were at $77.24 a barrel at 3.17am GMT, a notch below their last close.

US West Texas Intermediate (WTI) crude futures were up 9c at $66.04 a barrel.

Prices were pushed up by supply trouble in Venezuela, where state-owned oil firm PDVSA is struggling to clear a backlog of about 24-million barrels of crude waiting to be shipped to customers.

Out of sync

Despite this, oil markets are not unanimously bullish.

One of the key features of oil markets recently has been the widening discount of US WTI crude versus Brent, which has almost quadrupled since February to more than $11 a barrel, its steepest discount since 2015.

“This is occurring because of the rapid increase in production from US shale coupled with the tightening of supplies elsewhere through the actions of Opec and Russia,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.

Brent has been pushed up by voluntary production cuts led by the Middle East dominated producer cartel and by top producer Russia, which were put in place in 2017.

The group and Russia are due to meet at its headquarters in Vienna on June 22 to discuss production policy.

While the outcome of those talks is unclear, most analysts do not think that Opec will turn on its taps all the way.

“A consensus for higher oil prices and revenues will be the bedrock of every Opec nation. The countries will not risk a landslide in prices after suffering from the oil crash of 2014,” Benjamin Lu of Singapore-based brokerage Phillip Futures said on Friday in a note.

“Opec members will play their part in talking prices up to ensure profitability on oil revenues for 2018,” he said.

In North America, however, surging US output has pressured WTI crude futures.

US crude oil production hit another record last week at 10.8-million barrels a day.

That’s a 28% gain in two years, or an average 2.3 percent growth rate per month since mid-2016 and puts the US close to becoming the world’s biggest crude oil producer, edging nearer to the 11-million barrels a day churned out by Russia.

Reuters