Oil prices drop on rising US crude supply, but OPEC cuts support

Oil prices fell on Thursday after U.S. crude inventories rose and the country’s production held at record levels, but OPEC-led supply cuts and Washington’s sanctions against Venezuela supported markets.

U.S. West Texas Intermediate (WTI) crude futures were at $53.66 per barrel at 0744 GMT, down 35 cents, or 0.7 percent, from their last settlement.

International Brent crude oil futures fell 39 cents, or 0.6 percent, to $62.30 per barrel.

U.S. crude oil inventories climbed by 1.3 million barrels in the week that ended Feb. 1 to 447.21 million barrels, data from the Energy Information Administration (EIA) showed on Wednesday.

Meanwhile, average weekly U.S. crude oil production remained at the record 11.9 million barrels per day (bpd) it reached in late 2018. The United States is currently the world’s largest oil producer, ahead of traditional top suppliers Russia and Saudi Arabia.

There are also concerns that an economic slowdown could soon weigh on growth in fuel demand, with German industrial output unexpectedly falling in December for the fourth consecutive month.

Despite the overall rise in U.S. supply, traders were watching how long a partial closure of the Keystone oil pipeline would last after the discovery of a possible leak in the area of St Louis, Missouri.

Providing global markets with price support are supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) aimed at tightening the market.

“The key supply story remains the ongoing OPEC production cuts,” U.S. bank Goldman Sachs said on Wednesday.

Meanwhile, U.S. sanctions against Venezuela’s oil industry are expected to freeze sales proceeds of Venezuelan crude exports to the United States.

GRAPHIC: U.S. oil drilling, production & storage levels - tmsnrt.rs/2Q6Btw5

“Around a third of Venezuela’s exports head to the U.S. As such, we expect Venezuelan exports to quickly fall by 300,000 barrels per day (bpd) to around 700,000 bpd,” ANZ bank said on Thursday.

“The risks are rising that this political standoff will deepen the fall in output as funds dry up and mass defection of workers accelerates.”

Washington said last week that after April 28 foreign companies would not be able to conduct business with Venezuelan state-run oil firm PDVSA using the U.S. financial system, effectively banning them from paying in U.S. dollars.

“The ban ... dramatically ramps up the sanctions to a global level and could potentially result in a loss of most Venezuelan output,” French bank Societe Generale said in a note published on Wednesday.

Source: Reuters

Image Source: REUTERS