Drillers at a rig in the Delaware Basin near Wink, Texas
Drillers at a rig in the Delaware Basin near Wink, Texas. US crude hit a 2019 high of $55.75 and was later up 33 cents at $55.59. Image Credit: New York Times

London: Oil hit a two-month high close to $64 a barrel on Monday as Opec-led supply cuts and US sanctions against Venezuela’s petroleum industry offset forecasts of weaker demand and an economic slowdown.

The Organisation of the Petroleum Exporting Countries and its allies began a new round of supply cuts in January. These curbs, led by Saudi Arabia, have been compounded by involuntary losses that the Venezuelan sanctions could deepen.

Brent crude, the global benchmark, hit $63.63 a barrel, the highest since December 7, and was up 66 cents at $63.41 as of 1040 GMT.

US crude hit a 2019 high of $55.75 and was later up 33 cents at $55.59.

“You have the sanctions on Venezuela, on top of the reduced supply from Saudi Arabia,” said Olivier Jakob, oil analyst at Petromatrix. “There’s no sign of overhang in the crude oil markets.” Opec supply fell in January by the largest amount in two years, a Reuters survey last week found. That offset limited compliance with the output-cutting deal so far by non-Opec Russia.

The US sanctions on Venezuela will limit oil transactions between Venezuela and other countries and are similar to those imposed on Iran last year, some analysts said after examining details announced by the government.

Underlining the lack of excess supply, Jakob cited a rapidly clearing West African crude market and the structure of Brent crude futures, in which the first-month contract is trading near the price of the second month.

While Opec and its allies are cutting output, the United States is expanding supply. Nonetheless, figures on Friday showed a drop in the number of US oil rigs to their lowest in eight months, lending prices some support.

“The collapse in oil prices late last year has resulted in more cautious spending by US oil explorers,” Vivek Dhar, commodities analyst for Commonwealth Bank of Australia, said in a report on Monday.

The main drag on prices has been concern about a possible slowdown in demand this year due to a weaker outlook for economic growth and developments such as the US-China trade dispute.

US President Donald Trump last week said he would meet his Chinese counterpart Xi Jinping in the coming weeks to try to settle the dispute, and there are hopes that the two sides will come to an agreement.