Higher US Rig Count, Illinois Refinery Shutdown Hits Crude

Oil prices declined on Monday after last weekly data showed energy companies added more operating oil rigs and as a refinery fire in Illinois resulted in the closure of a large crude distillation unit.

US crude oil West Texas Intermediate (WTI) futures fell 0.5 percent to $52.43 a barrel, having lost about 1.1 percent to $52.16 earlier in the session. WTI prices were also pressured by the shutdown of 120,000 barrels per day (bpd) crude distillation unit (CDU) Phillips 66’s Wood River, Illinois, following a fire on Sunday.

International benchmark Brent oil futures dropped 0.7 percent to $61.73 per barrel, before slightly recovering to trade up by 0.03 percent to $62.12.

A Texas-based oil industry group reported on Friday that firms raised the number oil rigs by seven in the week to February 8, bringing the overall count to 854, indicating a further climb in US crude production, which has already reached a record of 11.9 million bpd.

Futures were a bit more optimistic last week, but shed almost 5 percent for the week as concerns over global growth weakened sentiment after the European Commission sharply lowered the Eurozone’s growth forecast for this year.

After ending 2018 in the red, oil prices have surged around 16 percent to start the year, driven by output cuts led by the Organization of the Petroleum Exporting Countries (OPEC) and US sanctions against Venezuela.

The issues in Venezuela continue to support prices and reports are emerging that Petróleos de Venezuela SA (PDVSA) is scrambling to secure new market for its crude, after the US placed additional sanctions on the country, an Australian bank stated.

Global Growth, Trade Dispute Renew Demand Concerns

Recent signs of world economic expansion losing momentum have renewed fears about a slowdown in energy demand, especially if trade tensions between the US and China drag on.

The latest round of trade discussions between the world’s two largest economies is due to begin later in the day, with traders awaiting further updates ahead of a March 1 deadline on new tariffs.

The US has threatened to increase duties already in effect on goods from China on March 1 if trade negotiations ended up without a deal. Trade talks will resume this week with a delegation of US officials travelling to China for the next round of discussions.

On Friday, it was reported that Igor Sechin, the head of Russia’s major oil producer Rosneft and close ally of President Vladimir Putin, has written to Putin saying the country’s agreement with OPEC to cut output is a strategic threat and plays into the hands of the US.

The letter is threat to the deal extension, according to one of the sources familiar with the matter.

The OPEC+ agreement has been implemented since 2017 with the goal of curbing a global supply glut. It has been extended many times and, under the latest deal, members and non-OPEC participating countries are cutting production by 1.2 million bpd until the end of June.

OPEC and its allies are set to meet on April 17 and 18 in Vienna to assess the agreement.

Broker Matt Stanley do not see Russia just withdrawing from the OPEC+ deal, although he stated that he would not be surprised at if the cuts by certain non-members of the cartel are wound down over the course of the year.

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