RIYADH: Oil prices went in different directions at the end of the week. Brent deteriorated to $67.03 per barrel and WTI rose to $59.04 per barrel, but both remain at four-month highs.
Still, poor economic signals that added to the generally bearish mood did not manage to drive oil prices down because of the tightening global supplies that led the surprise drawdown in US inventories.
The 10 million barrels fall in US crude stocks was the largest drop since July 2018, due to a combination of strong exports and higher refining utilization.
The reduced number of US oil rigs for a fourth week running sent drilling activity to its lowest in nearly a year.
The current level of oil prices does not reflect the market’s relatively strong fundamentals and supply tightness.
The Arabian Gulf sour crude grades have seen extensive buying activity with refiners securing spot cargoes in addition to their term cargoes.
Such high demand for the sour medium and heavy crude grades had Dubai crude in high demand.
Asian refiners are becoming increasingly concerned about the tightening supplies for the medium and heavy crude grade.
That is because many of them lack the flexibility to swiftly switch their refining systems to handle alternative light sweet crude grades that have low sulfur content.
The market remains preoccupied with Iranian sanction waivers, which may be extended for another round of six months.
Given the tight oil market that has been further exacerbated by the sanctions on Venezuela, the second half of this year might experience further tightening.
The US is widely expected to continue extending the waivers for the key importing countries which are China, India, Korea and Japan.
The a potential second round of waivers may not impact the market as much as last time in November 2018 when the price dropped by as much as $30 per barrel.
Helped by OPEC output cuts, the market has been stabilizing gradually even if not entirely recovering those early losses.
The current market appears too tight to be moved significantly by further waivers and should be able to absorb additional barrels — be they from Iran, Venezuela, Libya or the US.
Even with the last round of waivers, Iranian oil exports did not exceed 1.25 million barrels per day in February.
- Faisal Mrza is an energy and oil market adviser. He was formerly with OPEC and Saudi Aramco. Reach him on Twitter: @faisalmrza