US crude rises 2.2% to 3-month high, settling at $55.59, boosted by OPEC output cuts

Key Points
  • Oil prices rise, bolstered by OPEC-led supply cuts and the announcement of a higher-than-expected cut by Saudi Arabia.
  • The partial closure of Saudi Arabia's largest offshore oilfield also supports crude futures.
  • U.S. sanctions on Venezuela and Iran have help to tighten global supply.
Jason Reed | Reuters

Brent crude oil climbed above $66 a barrel to its highest this year as OPEC-led supply cuts and this week's announcement of a higher than expected cut by Saudi Arabia encouraged investors.

The international oil benchmark ended Friday's session $1.68 higher at $66.25 a barrel, up 2.6 percent on the day. Brent set a fresh three-month closing high going back to Nov. 19 on Friday and rose 6.7 percent on the week.

U.S. West Texas Intermediate crude futures rose $1.18, or 2.2 percent, to $55.58 per barrel, also the best settlement since Nov. 19. WTI ended the week with a 5.4-percent gain.

OPEC, along with allies led by Russia, made voluntary production cuts beginning last month aimed at tightening the market.

Oil hits new 2019 highs
Oil hits new 2019 highs

Top exporter and de facto OPEC leader Saudi Arabia said on Tuesday it would cut over half a million barrels per day (bpd) more in March than the deal called for, sending prices surging.

The cuts come alongside involuntary production curbs as a result of U.S. sanctions on Venezuelan and Iranian crude, along with curtailed Libyan output because of civil unrest.

Prices were also buoyed by the partial closure of Saudi Arabia's Safaniya, its largest offshore oilfield with a production capacity of more than 1 million bpd.

The shutdown occurred about two weeks ago, a source said, and it was not immediately clear when the field would return to full capacity.

"The market may be reconnecting with its fundamentals, specifically the several major supply chokeholds that have stacked up in recent months over and above the voluntary OPEC output restraints," said analyst Vandana Hari of Vanda Insights.

Bank of American Merrill Lynch said in a note that it expects a drop of 2.5 million bpd in OPEC supply in the fourth quarter of 2019 from a year earlier.

However, the global supply picture remains uncertain.

Don’t know or care about peak oil demand, BP chief economist says
Don’t know or care about peak oil demand, BP chief economist says

U.S. oil production is on the rise, while the seizure of Libya's main oilfield by Eastern armed forces this week could lead to its reopening.

But U.S. sanctions on Venezuela and Iran have have helped to tighten global supply and security threats could threaten Nigerian production after general elections this weekend.

"Looking ahead, the prognosis for Venezuela and Iran remains skewed to the downside. As such, they should continue to act as important pillars of price support. The same, however, cant be said for Libya," said Stephen Brennock of oil broker PVM.

"This risks throwing a spanner in the works for OPEC's rebalancing ambitions and, therefore, the price recovery."

Faltering global economic growth is also a concern, with signs of a slowdown now abundant in Europe, Asia and the United States, which could lead to slowing growth in fuel demand.

— CNBC's Tom DiChristopher contributed to this report.