U.S. West Texas Intermediate and international-benchmark crude oil futures are trading sharply higher on Tuesday shortly before the cash market opening on the back of optimism over a potential extension of the OPEC-led production cuts and an unexpected cut in Venezuelan oil exports due to a power outage in the embattled nation.
At 11:22 GMT, May WTI crude oil is trading $57.63, up $0.51 or +0.89% and May Brent crude oil is at $67.14, up $0.56 or +0.85%. Both markets are in a position to challenge their highs for the year, reached in mid-February.
The story that has been underpinning prices is the OPEC-led supply cuts that have been trimming about 1.2 million barrels per day since January 1. Now comes word that OPEC and its allies plan in April to keep its oil output well below the level pledged as part of its original deal. This should keep the oil supply tight.
In additional to the pledged output reduction, the crude oil markets have been getting an additional boost from the U.S. sanctions on Iran and Venezuela. Providing additional buoyancy to prices today is the news of a massive power outage in Venezuela, which is hurting the country’s ability to export oil. In addition, there are worries of additional limiting of supply due to turmoil in Libya.
Crude oil prices are expected to be underpinned throughout Tuesday’s session as concerns over supply and renewed demand for risky assets are likely to remain supportive. Furthermore, the recent price action and the market’s ability to regain its composure after recent concerns over demand drove prices lower, suggest that any further tightening in the physical crude balance could lead to a new high for the year over the near-term.
Later today, traders will get the opportunity to react to the latest weekly inventories data from the American Petroleum Institute. This report is expected to show that inventories rose by 2.9 million barrels. This report could trigger a volatile reaction because the markets are sensitive to rising U.S. production.
This article was originally posted on FX Empire
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