🎁 💸 Warren Buffett's Top Picks Are Up +49.1%. Copy Them to Your Watchlist – For FreeCopy Portfolio

Oil Has Best Quarter in 10 Years; Russia May Hold Key to Rally's Legs

Published 03/29/2019, 02:46 PM
Updated 03/29/2019, 03:13 PM
© Reuters.
GS
-
LCO
-
CL
-

By Barani Krishnan

Investing.com - Good job for the quarter, OPEC. Now, will Russia continue playing along with your cuts for the next two?

Crude oil prices notched their best quarterly gains in a decade on Friday, largely on aggressive production cuts by Saudi Arabia, Russia and their allies in the OPEC+ pact.

New York-traded West Texas Intermediate crude settled at $60.14 per barrel, advancing 1.4% for the day and 1.9% for the week. For the Jan. 1 to March 31 period it rose 33%. The last time WTI gained more for a quarter was during Q2 2009, when it rose about 40%.

London-traded Brent crude, the global oil benchmark, was at $67.67 per barrel by 2:44 PM ET (18:44 GMT), up almost 1% on the day and week. It rose 26% for the first quarter, also its best gain in 10 years.

OPEC production cuts aside, Friday's sentiment in oil was also helped by data showing a sixth-straight weekly fall in the U.S. oil rig count to a near-one-year low. Goldman Sachs (NYSE:GS) showed earlier this week that U.S. oil drillers were under-hedging their production for 2020 despite this year's rally, explaining their falling rig counts and production of late.

The first quarter rebound in commodity prices and investments could extend to the coming months as the sector gets its traditional boost during the final stages of the global economic cycle, Reuters said in a report on Friday.

Despite that, there are questions on how much longer the rally in oil could continue, with speculation that Russia may not be agreeable to extending OPEC's production cuts beyond September when the group meets in June.

While the Saudis need oil to be ideally at $80 a barrel and above for their budget, the Russians are said to be content with $55, giving them reason to sell more crude at current prices than restrict exports to get higher prices.

President Donald Trump's urging this week that OPEC raise production to cool oil prices, which he described as "too high," may also be also turning the screws on the group, although the Saudis are unlikely to give in to the president as they did a year ago when they turned the spigots on and he signed away generous waivers on Iranian oil sanctions on top of that to flood the market with oil.

"There is a direct contradiction between the president’s electoral strategy, which assumes prices below $70, and Saudi Arabia’s economic and political strategy, which needs prices well above $70," Reuters oil columnist John Kemp said in an article on Friday.

Commodity funds that plowed into oil in the first quarter, or were at least enticed by its gains, also seem to be turning somewhat cautious on price prospects for Q2 and Q3.

The transition comes amid growing fears of a U.S. recession and economic slowdown from China to Europe that could offset the bullish picture rising from the combination of OPEC cuts, falling U.S. production and additional squeeze on global supplies from Trump's sanctions on Iran, as well as Venezuela.

"We are slightly bullish on oil, but not enough to own it," said Matthew Tuttle, founder of the $600 million Tuttle Tactical Management fund in Riverside, Conn.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.