Oil futures edged higher on Monday, lifted by supply concerns as Iraq reportedly planned production cuts and Libya saw disruptions to crude exports due to a pay dispute.
“Iraq, amazingly for fellow members that had nearly lost hope on its compliance, promised to reduce its oil production in January and February, to compensate for exceeded quota in 2020,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy, in daily commentary.
Iraq plans to produce 3.6 million barrels a day of oil in January and February, news reports said, which would fall below the 3.86 million barrels a day allowed under the agreement by the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+. The deeper cuts aim to compensate for overproduction by the country in 2020.
“If Iraq manages to reduce output to these levels, it would be the lowest output we have seen from them since 2015,” said Warren Patterson, head of commodities strategy at ING, in a note. “However, given Iraq’s record of falling short with production cuts, there is no guarantee that they will meet this target.”
West Texas Intermediate crude CL.1, +0.36% CLH21, +0.36% for March delivery was up 10 cents, or 0.2%, at $52.37 a barrel on the New York Mercantile Exchange. March Brent crude BRNH21, +0.47% BRN00, +0.47%, the global benchmark, was up 11 cents, or 0.2%, at $55.52 a barrel on ICE Futures Europe.
“Markets can only benefit from more production curtailments as bearish signals are coming from the demand front, with Covid-19 infections continuing to expand globally and refinery maintenance season coming ahead,” said Tonhaugen.
Still, with all that oil production cut from OPEC+, “when the alliance will finally decide it is time to bring back its oil machine to full speed, the market may be in a for a big shock,” he said. “For traders, expect that this moment is still several months away though.”
Meanwhile, Reuters reported that Libya’s Petroleum Facilities Guard halted all oil exports from the ports of Ras Lanuf, Es Sider and Hariga due to a pay dispute.
Libya had previously seen an “exceptional” recovery in oil output, Patterson noted, hitting more than 1.2 million barrels a day in December after producing less than 100,000 barrels a day in August.
Back in the U.S., President Joe Biden is pushing for quick approval of his proposed $1.9 trillion pandemic relief package, “a development interpreted by the market as a clear indication that the new U.S. administration aims to kick-start an economic recovery, which will naturally benefit fuel consumption,” said Tonhaugen.
Petroleum-product prices were also higher in Monday dealings, with February gasoline RBG21, +0.98% up 0.3% at $1.5535 a gallon and February heating oil HOG21, +0.66% adding 0.2% to $1.5794 a gallon.
February natural gas NGG21, +4.46% traded at $2.55 per million British thermal units, up by nearly 4.3%. The Energy Information Administration reported last week that U.S. supplies of the fuel fell by 187 billion cubic feet for the week ended Jan. 15, larger than the average decline over the last five years, analysts said.
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