Oil up on tight supply, but economic slowdown weighs

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LONDON (Reuters) – Oil prices rose on Wednesday back toward five-month highs hit the previous day as OPEC production cuts and U.S. sanctions on Iran and Venezuela continued to tighten supply, though economic worries increased.

International benchmark Brent futures were up 36 cents, or 0.5 percent, at $70.97 a barrel by 1050 GMT. U.S. West Texas Intermediate (WTI) crude oil futures were up 45 cents, or 0.7 percent, at $64.43.

Oil markets have tightened this year because of U.S. sanctions on oil exporters Iran and Venezuela, as well as supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and some non-affiliated producers including Russia, a group known as OPEC+.

Brent and WTI crude oil futures have risen by about 30 percent and 40 percent respectively since the start of the year.

“The global oil market is clearly moving back toward balance thanks to OPEC+ production cuts,” ING bank said.

OPEC is expected to release its monthly oil market report at 1110 GMT.

The Dutch bank said the reduction was not only down to voluntary supply cuts, which the group started this year to prop up prices, but also involuntary curbs from Venezuela and Iran – which are exempt from the OPEC cut pact – because of U.S. sanctions.

“Declines from these two exempt countries account for almost 47 percent of the reduction seen from OPEC,” ING added.

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But Russia’s role in the pact came into focus after a senior Russian official signaled that Moscow might seek to raise output, though President Vladimir Putin indicated on Tuesday that current prices suited Russia.

“The Russian camp is increasingly coy about extending supply cuts. Suffice to say this may throw a spanner in the works for a sustained price recovery,” said PVM analyst Stephen Brennock.

Not all regions are in tight supply, however.

U.S. crude stocks rose by 4.1 million barrels to 455.8 million barrels in the week to April 5, data from industry group the American Petroleum Institute showed on Tuesday, though gasoline and distillate inventories fell more than expected.

But in its third downgrade on global growth since October, the IMF warned on Tuesday that the global economy was slowing more than expected and a sharp downturn may be looming.

Slower growth would undermine fuel demand and could put a cap on prices.

The IMF said the global economy is likely to grow by 3.3 percent this year, the slowest since 2016. The forecast cut 0.2 percentage points from the IMF’s outlook in January.

Additional reporting by Henning Gloystein; Editing by Mark Potter and David Goodman