Oil Prices Rise On Larger-Than-Expected OPEC Production Cuts

Darnell Taylor
February 13, 2019

World oil demand will grow more slowly this year, OPEC said, and non-OPEC production will rise more rapidly than expected.

IEA figures show Venezuala's output dropping by roughly 30,000 barrels per day to 1.26 mbd. Forecasts for non-OPEC supply were lifted by an improved outlook for the Gulf of Mexico, while projections for global demand were lowered as a result of weakness in Europe and the Americas.

Brent oil prices rose on Wednesday, after top exporter Saudi Arabia said it would cut crude exports and deliver an even deeper cut to its production, while U.S. futures gained on a decline in domestic oil inventories.

A view of Saudi Aramco's Ras Tanura oil refinery and oil terminal in Saudi Arabia. American supply growth this year will exceed Venezuela's total output, the IEA said, another signal that OPEC's efforts to buoy prices may ultimately prove self-defeating.

Output has gone into free fall as the country's isolation has increased, shrinking from 2.4 million bpd in 2016 to 2.0 million bpd in 2017 and 1.5 million bpd in 2018, according to the Joint Organisations Data Initiative. Distillate inventories decreased by 2.481 million barrels versus an expected draw of 1.090 million barrels. Any economic slowdown could cap oil markets.

U.S. oil supplies dropped by almost 1M barrels last week, API reported.

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The U.S. Treasury's guidance, which appears deliberately unclear, has left many third-country buyers uncertain about whether they can do business with PDVSA without also falling foul of sanctions.

In the meantime, the political rift between Venezuela and the United States continues with the US sanctions against the South American nation giving prices a slight boost.

Saudi Arabia, the world's top oil exporter and de facto leader of OPEC, said it would reduce crude production to around 9.8 million bpd in March, over half a million bpd more than it originally pledged.

But while Venezuela's crude now accounts for a very limited share of the global oil market, it plays a much more important role in the niche market for heavy crude.

Bank of America also warned of a "significant slowing" in global growth, adding that it expects Brent and WTI to average $70 and $59 a barrel respectively in 2019 and $65 and $60 in 2020.

If refiners are unable to source enough heavy and extra heavy crude, they will buy the next best alternative, in this case medium density crudes, so the impact of sanctions is rippling through the entire oil market.

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