Oil prices recorded their first weekly gain in two weeks, driven higher by unrest in Iraq and Ecuador, as well as by optimism over talks between the US and China aimed at ending their trade war.
The attack on an Iranian oil tanker off the coast of Jeddah overshadowed the latest hints from OPEC about the possibility of making deeper output cuts.
Brent crude finished the week at $60.51 per barrel, while the US WTI measure also advanced to $54.70 per barrel.
Supply disruptions originating from US sanctions on Iran and Venezuela continued to make for a tight spot market even as concerns over slower global growth and the US-China trade war put downward pressure on the market for future oil deliveries.
Both OPEC and the International Energy Agency (IEA) see lots of oil supplies through 2020, each flagging similarly pessimistic oil demand growth outlook that may have neglected the fragility of global spare production capacity.
In their monthly reports, neither OPEC or the IEA factored in concerns about global oil supply threats — even if Saudi Arabia took just 12 days to restore output to pre-attack levels without necessitating the suspension of exports.
The speed and efficiency of the Saudi response may have lulled the market into a false sense of security because if such attacks happen elsewhere, the story could have been very different — with serious supply outages sending the oil price rocketing.
OPEC and the IEA have pumped pessimism into the market that is helping to put downward pressure on oil prices.
Separately, the US Energy Information Administration (EIA), sharply lowered its oil price outlook as it sees weak oil demand growth more than offsetting the higher risks of supply disruptions after the recent attacks.
It expects Brent to average $63.37 per barrel in 2019, and $59.93 per barrel in 2020. It sees WTI averaging $56.26 per barrel in 2019 and $54.43 per barrel in 2020.
The EIA forecast US oil production to average 12.26 million bpd in 2019, and 13.17 million bpd in 2020.
However there may be a mismatch here between its expectations of a lower oil price and higher US output because the Permian producers require higher prices than those forecast to sustain capital expenditure.
Hence, such lower oil prices forecast for 2019 and 2020 should see oil production growth trending lower as budgets are squeezed.
S&P Platts Global reported US oil drilling was 19.8 percent lower than a year earlier, while the US oil and gas rig count has also been declining since the end of last year — dipping to 931 lately after a high of 1,233 in mid-November 2018.
Such numbers raise questions over the sustainability of the US shale oil output growth without a corresponding hike in oil prices.
