Oil prices rose on Monday after OPEC released a report showing the global glut of crude oil has been virtually eliminated on dropping Venezuelan production along with the OPEC supply cut pact.  The Politician photo.

Oil prices up on bullish OPEC report

On Monday, oil prices rose after data from the Organization of Petroleum Exporting Countries showed the global glut of crude has been all but eliminated.  As well, US crude’s discount to benchmark Brent hit over $7, the deepest discount in five months.

By 4:26 p.m., EDT, Brent crude was up $1.39 to $78.51 and US West Texas Intermediate rose 47 cents to $71.17/barrel.  The Canadian Crude Index was even, up by 1 penny to $50.39.

John Kilduff, partner at Again Capital LLC told Reuters that the OPEC report “was bullish. That absolute plunge in Venezuelan production … just highlights how tenuous the market is in terms of the supply and demand balance”.

According to the OPEC report, Venezuelan production is at its lowest level in decades and that the global crude glut that tanked oil prices in 2014 has been virtually eliminated.  Despite this, OPEC and other participants in the supply cut agreement continue to cut their production at rates higher than initially agreed to.

Rising US production and the threat of US sanctions being reimposed on Iran deepened the discount between Brent crude and US WTI to $7, the highest its been since mid-December.

“You have the threat that a high enough price will start to activate the 7,700 drilled but uncompleted wells in the lower 48 states,” Walter Zimmerman, chief technical analyst at ICAP TA told Reuters.

The Trump administration’s announcement concerning the US withdrawing from the Iran sanction relief pact occurred under one week ago, and as such, it is still unclear how the decision will impact Iran’s oil industry.  Much will depend on how other major oil consumers respond to the Trump decision.

Other signees of the agreement, China, France, Russia, Britain, Germany and Iran still remain in the agreement which exchanged easing prior sanctions in exchange for controls on Iran’s nuclear program.

“Germany has said it will protect its companies from U.S. sanctions, Iran has said French oil giant Total has yet to pull out of its fields and all the while it seems the Chinese are ready to fill the void created by the U.S,” Greg McKenna, chief market strategist at AxiTrader, told Reuters.

Michael Wittner, analyst at Societe Generale, predicts the reimposition of sanctions by the US will remove 400,000 to 500,000 barrels per day of Iranian crude from the global market.

Also, oil prices were supported after from Genscape showed falling inventories at Cushing, Oklahoma, the delivery point for US crude futures.  Stocks in Cushing dropped by over 400,000 barrels in the week to May 11.

“The expectation that there’s going to be a drawdown in crude stocks this week is keeping the market very tight,” Phil Flynn, analyst at Price Futures Group told Reuters.