Opec oil production falls as Saudi Arabia slashes output

13 February, 2019, 19:04 | Author: Regina Silva
  • OPEC cuts & US sanctions against Iran and Venezuela boosting global crude prices

Venezuela's production has nearly halved in two years to 1.17 million bpd, as an economic crisis decimated its energy industry and US sanctions have now crippled its exports.

Hopes of a US-China trade deal have lent extra oxygen to crude oil prices in past sessions and this should remain a key driver in the very near term.

US West Texas Intermediate (WTI) crude oil futures rose $0.89 or 1.7% to $53.30.

"In quantity terms, in 2019, the USA alone will grow its crude oil production by more than Venezuela's current output".

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.

Additionally, the International Energy Agency said energy market participants may be able to adjust to USA sanctions against Venezuela's crude industry.

The IEA noted that new USA sanctions announced in January on Venezuela's state oil company PDVSA have not so far caused market jitters.

USA crude output is expected to grow by 1.45 million bpd this year and by another 790,000 bpd next year to hit 13 million bpd in 2020, according to the Energy Information Administration. Distillate inventories decreased by 2.481 million barrels versus an expected draw of 1.090 million barrels.

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Venezuela's diminished importance in the global oil market and as a supplier to the United States has emboldened the USA administration to take a tough approach in attempting to oust the government of Nicolas Maduro.

Venezuela has tried to find alternative customers, especially in Asia, but under United States pressure many buyers there are also shying away from dealing with PDVSA. The price has largely plateaued since then, in spite of the subsequent imposition of US sanctions.

Most new supply is coming from the United States, where crude production rose by more than 2 million bpd a year ago to a record 11.9 million bpd, making the country the world's biggest oil producer ahead of Russian Federation and Saudi Arabia.

"Even so, headline benchmark crude oil prices have hardly changed on news of the sanctions".

"Nevertheless, this would not lift the global economy beyond the growth forecast".

"The imposition of sanctions by the United States against Venezuela's state oil company Petroleos de Venezuela (PDVSA) is another reminder of the huge importance for oil of political events", the IEA said.

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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