A view of the main deck of Tullow Oil's Floating Production, Storage and Offloading vessel. Picture: REUTERS
A view of the main deck of Tullow Oil's Floating Production, Storage and Offloading vessel. Picture: REUTERS

Singapore — Oil prices slipped away from 2019 highs on Wednesday, with surging US supply and slowing economic growth tempering upward pressure from supply cuts led by producer club Opec and from Washington’s sanctions on Iran and Venezuela.

US West Texas Intermediate (WTI) crude oil futures hit 2019 highs of $56.39 a barrel on Wednesday but had slipped back to $56.15 a barrel by 5.23am GMT, which was slightly above their last settlement.

International Brent crude futures were at $66.33 a barrel, down 12c, or 0.2%, from their last close, though still not far off their 2019 high of $66.83 a barrel from Monday.

Oil prices have been supported by supply cuts led by producer cartel Opec.

Opec-member and top crude exporter Saudi Arabia is expected to reduce shipments of light crude oil to Asia in March as part of the effort to tighten markets.

Opec as well as some non-affiliated producers such as Russia agreed late in 2018 to cut output by 1.2-million barrels a day to prevent a large supply overhang from swelling.

“We have lowered Saudi crude oil output in line with announcements … [and] are now assuming that Saudi Arabia will produce in the first three quarters of 2019 less than the 10.31-million barrels a day target it agreed to at the December 7 Opec, non-Opec meeting,” French bank BNP Paribas said in a note.

Because of the cuts, BNP said it expected oil prices “to rally through the third quarter of 2019”, with Brent to average $73 a barrel by then and WTI to average $66.

Another key oil price driver has been US sanctions on oil exporters Iran and Venezuela.

Despite the sanctions, Iran’s crude exports were higher than expected in January, averaging about 1.25-million barrels a day, according to Refinitiv ship tracking data. Many analysts had expected Iran oil exports to drop below 1-million barrels a day after the imposition of US sanctions last November.

Shale boom, weaker economy

Standing against the supply cuts and sanctions is US crude output, which soared by more than 2-million barrels a day in 2018 to a record 11.9-million barrels a day, thanks to booming shale oil production, which the Energy Information Administration on Tuesday said was expected to keep rising.

BNP Paribas said surging US output would feed into lower oil prices towards the end of the year, with Brent to dip to an average of $67 a barrel by the fourth quarter and WTI to average $61.

“US oil production growth, driven by shale, will be increasingly exported in greater volumes to international markets while the global economy is expected to witness a synchronised slowdown in growth,” the bank said.