A gas flare burns at a Russian oil refinery operated by Lukoil. Picture: BLOOMBERG
A gas flare burns at a Russian oil refinery operated by Lukoil. Picture: BLOOMBERG

Singapore — Oil prices rose on Friday amid expectations of supply cuts from the Opec cartel, although record US production limited the gains.

US West Texas Intermediate (WTI) crude oil futures were at $56.84 a barrel at 3.53am GMT, up 38c or 0.7% from their last settlement.

Brent crude oil futures were up 48c or 0.7% at $67.10 a barrel.

Prices were mainly supported by expectations the Organisation of the Petroleum Exporting Countries would start withholding supply soon, fearing a renewed rout such as in 2014, when prices crashed under the weight of oversupply.

De facto Opec leader Saudi Arabia wants the cartel and its allies to cut output by about 1.4-million barrels a day, about 1.5% of global supply, sources told Reuters this week.

However, Morgan Stanley warned a cut by the Middle East-dominated producer cartel may not have the desired effect.

"The main oil price benchmarks — Brent and WTI — are both light-sweet crudes and reflect this glut," the US bank said.

"Opec production cuts are usually implemented by removing medium and heavier barrels from the market but that does not address the oversupply of light-sweet."

Due to the structural oversupply that has emerged in the market from record production by many countries, Morgan Stanley said Opec cuts "are inherently temporary (because) all they can do is shift production from one period to another".

While Opec considers withholding supply, US crude oil production reached another record last week, at 11.7-million barrels a day, according to US Energy Information Administration (EIA) data published on Thursday.

US output has surged by almost a quarter since the start of the year.

The record output meant US crude oil stocks posted the biggest weekly build in nearly two years.

Crude inventories soared by 10.3-million barrels in the week to November 9, to 442.1-million barrels, the highest level since early December 2017.

This surge contributed to oil prices falling by about a quarter since early October, taking many by surprise.

"Oil bulls, us included, have capitulated and we no longer see oil climbing to $95 a barrel next year," Bank of America Merrill Lynch said in a note.

While sentiment has turned bearish, some analysts warn that 2019 could be tighter than expected.

"We expect 2019 oil demand to reach 101.1-million barrels a day," natural resources research and investment firm Goehring & Rozencwajg said, up from just under 100-million barrels a day this year.

At the same time, the firm said production outside North America was set to disappoint.

Add Opec's expected supply cuts, and Goehring & Rozencwajg said "those investors who are able to adopt a contrarian stance … and stomach the volatility … are being presented with an excellent investment opportunity" to buy into oil after the recent slump.

Bank of America agreed, saying "we believe oil is oversold and will likely bounce up from the current levels, as Opec+ dials back production in December".