Oil prices continue rising this morning, within striking distance of $60/bbl for WTI crude. If prices can surpass this level, it would be the highest oil price since early November 2018. Crude oil is currently trading at $59.18, up 9 cents from yesterday’s close.
Diesel prices are getting a strong lift this morning after recent weakness, though gasoline is marginally lower. Diesel is trading at $1.9874, up 1.8 cents from Monday’s close. Gasoline prices are $1.8806, virtually flat with yesterday’s prices.
Markets rallied yesterday as OPEC functionally committed to continuing production cuts through June, with further evaluations coming thereafter. Markets had been expecting the news, but the certainty still added a boost to prices. OPEC’s cuts will come as Iran sanction waivers expire, putting significant pressure on oil supplies and causing traders to bid up prices ahead of the tightness.
While OPEC was committing to continued cuts, Canada loosened its production limit by 25 kbpd in May, with an incremental 25 kbpd allowed in June. After cutting production by 325 kbpd in January, the Alberta government has gradually raised the limit as the market has balanced out for producers. In November, Alberta’s Western Canadian Select (WCS) crude was trading $45/bbl below WTI – a massive discount that left producers unprofitable. Since then, mandatory cuts have eased the gap to just $10/bbl in 2019. By the end of June, cuts will have shrunk to just 175 kbpd, roughly 4% of Canada’s total production.
In other North American news, Mexico is committing to triple its number of drilled wells this year, adding an additional 300 kbpd by 2022. Of course, Mexico’s major oil company, Pemex, has been plagued with cartel theft and corruption, so it’s hard to count on this production materializing in full. Mexico’s oil production has been steadily declining for years, but Mexican President Obrador, elected in 2018, is committed to revitalizing the country’s energy sector. Most recently, the country has shut down certain pipelines to cut off cartels from tapping pipelines for free fuel – resulting in regional fuel shortages that caused severe disruptions.