Benchmark Brent oil prices hit a 2019-high on Friday as investors were encouraged by the OPEC supply cut as well as a higher-than-expected drop in Saudi Arabia’s production.  

Oil prices up over 2 per cent

Oil prices climbed over 2 per cent on Friday to their highest value this year on the OPEC supply cut agreement and an announcement from Saudi Arabia that the kingdom had cut its production by more than expected.

By 1:19 p.m., EST, benchmark Brent oil prices were up $1.40 to $65.97/barrel.  Brent is on track for an increase of about 5.5 per cent this week. US West Texas Intermediate climbed 97 cents to $55.38/barrel.

In January, OPEC along with allies, including Russia, began voluntary production cuts amounting to a total of 1.2 million barrels per day (b/d), in an effort to tighten the oil market.

On Tuesday oil prices surged after the Saudis announced that in March, the kingdom would further cut its production by over half a million b/d more than pledged in the output cut pact.

Also in Saudi Arabia, the country’s largest offshore oilfield, Safaniya, has been partially closed for about two weeks and it is not clear when the oilfield will return to full capacity.

“The market may be reconnecting with its fundamentals, specifically the several major supply chokeholds that have stacked up in recent months over and above the voluntary OPEC output restraints,” analyst Vandana Hari of Vanda Insights told Reuters.

US sanctions on Venezuelan and Iranian crude exports along with curtailed production in Libya due civil unrest also buoyed oil prices.  Also, security treats in Nigeria could threaten the OPEC member’s oil production boosted the oil market.

“Looking ahead, the prognosis for Venezuela and Iran remains skewed to the downside. As such, they should continue to act as important pillars of price support. The same, however, can’t be said for Libya,” Stephen Brennock of oil broker PVM told Reuters.

“This risks throwing a spanner in the works for OPEC’s rebalancing ambitions and, therefore, the price recovery.”

In a note, Bank of America Merrill Lynch said it expects OPEC supply to be down by 2.5 million b/d in the fourth quarter of 2019, compared to Q4 2018.

However, as US production continues to rise and Eastern armed forces in Libya seized control of the country’s main oilfield which could lead to its reopening soon, the global supply picture remains unclear.

On Friday, Baker Hughes reported the US oil rig count rose by three to 857.  In Canada, the oil rig count fell by six to 152.

A faltering global economy is also weighing on investors as signs pointing to a showdown are abundant in Europe, Asia and the United States.  Slowing economic growth could lead to a drop in fuel demand.