Oil prices inched up on Wednesday amid supply cuts by producer group, OPEC, and U.S. sanctions on oil exporters, Iran and Venezuela, but pressured by expectations that an economic slowdown could soon dent fuel consumption.
International benchmark Brent futures were at 70.76 dollars per barrel at 0652 GMT, up 15 cents, or 0.2 per cent, from their last close.
U.S. West Texas Intermediate (WTI) crude oil futures were at 64.20 dollars per barrel, up 22 cents, or 0.3 per cent, from their last settlement.
Both benchmarks hit five-month highs on Tuesday before easing on global growth worries.
Overall, oil markets have tightened this year because of U.S. sanctions on oil exporters, Iran and Venezuela, as well as supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and some non-affiliated producers including Russia, a group known as OPEC+.
As a result, Brent and WTI crude oil futures have risen by around 30 per cent and 40 per cent respectively, since the start of the year.
“The global oil market is clearly moving back toward balance, thanks to OPEC+ production cuts. OPEC production has fallen by 1.98 million barrels per day (bpd) from October levels,” ING bank said in a note.
The Dutch bank said the reduction was not only down to voluntary supply cuts, which the group started this year to prop up prices, but also sanctions by the U.S.
“Venezuelan oil output is estimated to have fallen from 1.19 million bpd in October to 890,000 bpd in March, while output from Iran has fallen from 3.33 million bpd to 2.71 million bpd due to sanctions.
“Declines from these two exempt countries account for almost 47 per cent of the reduction seen from OPEC,” ING said.
ANZ bank said on Wednesday that it expects Brent oil prices to push “toward 79 per dollars barrel”.
Despite the OPEC-led cuts and U.S. sanctions, not all regions are in tight supply.
Oil production in the U.S. has risen by more than two million bpd since early 2018, to a record 12.2 million bpd.
“WTI has not seen the same strength (as Brent) … given the relatively more bearish fundamentals in the U.S. market,” said ING bank.
“U.S. crude oil inventories remain stubbornly high,” it added.
U.S. crude stocks rose by 4.1 million barrels in the week to April 5, to 455.8 million barrels, data from industry group the American Petroleum Institute showed on Tuesday.
On the demand side, there are concerns that an economic slowdown will soon hit fuel consumption.
The International Monetary Fund (IMF) warned on Tuesday that the global economy was slowing more than expected and that a sharp downturn may be looming.
In its third downgrade since October, the IMF said the global economy will likely grow 3.3 per cent this year, the slowest expansion since 2016.
The forecast cut 0.2 percentage point from the IMF’s outlook in January.
“Sentiment is clearly fragile, particularly following yet another global growth downgrade by the IMF,” said Jasper Lawler, Head of Research at Futures Brokerage London Capital Group.