OPEC production fell to a four-year low in January as the cartel applied a new pact to boost global oil prices, the International Energy Agency said Wednesday, but Russian Federation and other ex-Soviet states failed to cut back output as much as promised.
Oil Storage Tanks at Cushing, OKThe global oil market will struggle this year to absorb fast-growing crude supply from outside OPEC, even with the group's production cuts and US sanctions on Venezuela and Iran, the International Energy Agency said in a report on Wednesday.
The IEA raised its estimate of growth in crude supply from outside the Organization of the Petroleum Exporting Countries to 1.8 million bpd in 2019, from 1.6 million bpd previously.
The combination of the OPEC-led production cuts, the increased reduction by the Saudis and in a limited way, the sanctions against Venezuela are helping to underpin prices, but in order to put the market over the top, demand is going to have to increase.
Given the six- to eight-week sailing time between the Latin American country and destinations in Asia, it's likely that the pinch of USA sanctions will only be felt in April, given that all February cargoes and most of March's are already en route. "China trade negotiations and less-ambitious monetary tightening by the U.S. Federal Reserve", OPEC said in the report. The improvement in the global risk tone has also provided a lift for Brent crude futures.
Oil extended a rally on Tuesday above $63 a barrel.
On Tuesday, Saudi Energy minister Khalid al-Falih told the Financial Times the kingdom's production will fall below 10 million barrels per day in March, more than half a million below the target it agreed to in a deal between OPEC and its allies, aimed at curbing a global supply overhang.
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Currently Brent benchmark price stands at $62.7/barrel, about 16% above the early January level. An OPEC+ cut from January 2017 had got rid of an earlier surplus.
"Global oil demand growth is now pegged at 1.47 mb/d for the previous year".
But Asia is facing the loss of nearly 700,000 bpd of heavy crude from Venezuela by April, coincidentally the same month that Trump's waivers on Iranian crude exports are due to expire. That amounts to 86 percent compliance with pledged cuts, according to a Reuters calculation.
"Light crudes naturally yield more gasoline, and together with relatively modest demand-growth, this has driven gasoline stocks sharply higher and crack spreads sharply lower in recent months", Morgan Stanley said.
And further declines in Iran, Libya and Venezuela - exempt from the supply pact - could give a tailwind.
Oil prices gained almost 2% on Tuesday, supported by OPEC-led production cuts which Saudi Arabia said it would surpass by over half a million barrels per day (bpd) and by United States sanctions against Iran and Venezuela.
The political crisis in Venezuela risks disrupting global crude markets as the type of oil pumped by the OPEC member becomes increasingly scarce, according to the International Energy Agency. Even 1.5 million barrels puts Iran's economy in a bind and anything less than that will make the budget hard to manage. This article is strictly for informational purposes only.