Oil prices rose about 20 percent in April amid signs of slower US production growth. Commercial oil inventories fell as the number of US drilling rigs continued to decline. The International Energy Agency raised its forecast for global demand growth that year by 90,000 barrels per day to 1.1 million barrels per day because of strong first-quarter demand.
In a report, National Bank of Kuwait said OPEC output rose to a 13-month high of 31.5 million barrels per day in March, alongside higher Saudi and Iraqi production. Non-OPEC output continued to rise in the first quarter, up 1.8 million barrels per day year on year. The IEA lowered its forecast for US output growth by 50,000 barrels per day to 0.55 million barrels per day for the year.
The report said Brent ended April at $64.9 a barrel, up $11 or 20 percent. West Texas Intermediate rose 25 percent to $59.6, while Kuwait Export Crude reached $60 a barrel. These were the highest prices recorded so far.
Factors behind the recovery included geopolitical developments, particularly in Yemen, which markets believed could threaten oil transport through the Bab Al-Mandab Strait, and a weaker dollar. By the end of April, Brent futures for delivery in the coming December and December 2017 ranged between $69 and $73 a barrel. Global oil demand increased because of cold weather in OECD countries and improvements in the world economy. The IEA expected demand growth of 1.1 million barrels per day that year, compared with a previous March forecast of 90,000 barrels per day, bringing average global demand to 93.6 million barrels per day.
Saudi Arabia increased March production by 650,000 barrels per day to 10.3 million to meet strong demand. Iraqi output also rose, lifting OPEC production by 1.2 million barrels per day to a 13-month high of 31.5 million. Libyan production regained strength after four consecutive months of decline, while Kuwait remained steady at 2.85 million barrels per day.
The increase in Saudi output reflected unexpectedly stronger Asian demand and the usual rise in energy demand before summer. Saudi revenues also increased despite lower oil prices, as the kingdom sought to maintain its market share and shift the burden of production cuts outside OPEC. Saudi Oil Minister Ali Al-Naimi expected production to remain around 10 million barrels per day and oil prices to improve in the near term.
The report said the preliminary nuclear agreement between Iran and the P5+1 had raised questions about how OPEC would manage production if Iran returned to oil markets. Iran was producing about 3 million barrels per day and, according to the IEA, could increase this to 3.6 million within months of oil export sanctions being lifted.
Large quantities of Iranian oil entering an already oversupplied global market were expected to increase downward pressure on prices, making OPEC’s response critical.
Iranian Oil Minister Bijan Zanganeh called for a 5 percent OPEC production cut to make room for Iranian oil. However, with producers intent on retaining market share, the organization was unlikely to agree. The report said non-OPEC production continued rising in March, by 100,000 barrels per day to 57.7 million. Average first-quarter production was 57.5 million barrels per day, up 1.7 million year on year.