Opec tightens its taps as global oil demand stalls
14 February, 2019, 10:53 | Author: Regina Silva
Oil prices rose on Wednesday as producer club Organisation of the Petroleum Exporting Countries (OPEC) said it had cut supply deeply in January and as USA sanctions hit Venezuela'soil exports.
Oil has advanced around 19 percent this year as the OPEC+ alliance of producers cut output, but the rally has sputtered in February amid record US shale drilling.
Venezuela sanctions have arrived in a market that was already likely to be short of medium and heavy crudes because of USA sanctions on Iran and OPEC's output cuts.
USA prices were also supported by a report from the American Petroleum Institute (API) on Tuesday showing that crude inventories fell by 998,000 barrels in the week to 8 February to 447.2 million, compared with analyst expectations for an increase of 2.7 million barrels.
US sanctions on Iran and Venezuela, together with OPEC's output cuts, have therefore removed mostly medium and heavy oils from the market, leaving lighter grades relatively unaffected.
Mars, a medium crude grade from the U.S. Gulf, has moved to a rare premium over Louisiana Light Sweet. The global crude benchmark traded at a $9.30 premium to WTI.
Saudi Aramco is the world's biggest oil company, producing ten million barrels of oil a day and managing 260 billion barrels in reserves.
The cartel made the pledge a year ago alongside major oil producing countries outside the cartel, including Russian Federation, to safeguard oil prices against a global economic slowdown.
The Paris-based organisation said that OPEC crude output dropped by 0.93 million barrels per day (mbd) to 30.83 mbd in January. Energy Minister Khalid al-Falih on Tuesday told the Financial Times production would fall below 10 million bpd in March, more than half a million bpd below the target it agreed to as part of a global deal to limit supply.
"So far, there are no signs that other producers, e.g".
Production has been hampered by corruption, political interference and lack of foreign investment and technology to maintain existing fields and develop new ones.
Like Iran, another founding member of the Organization of the Petroleum Exporting Countries, Venezuela's oil industry has been blighted by mismanagement, unrest, political instability, diplomatic isolation and sanctions. Analysts polled by Reuters forecast an increase of 2.7 million barrels.
The IEA said it expected global oil demand this year to grow by 1.4 million bpd, while non-OPEC supply will grow by 1.8 million bpd.
In the meantime, the political rift between Venezuela and the United States continues with the USA sanctions against the South American nation giving prices a slight boost.
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.
Oil climbed for a second day as dwindling shipments from two of the world's biggest crude exporters eclipsed another big jump in US supplies.
US bank Morgan Stanley said the surge in USA crude oil production, which tends to be light in quality and which rose by more than 2 million barrels per day (bpd) past year to a record 11.9 million bpd, had resulted in overproduction of gasoline. "Saudi Arabia, are intending to push more barrels into the market to offset shortfalls" of heavier grades of crude, the IEA warned. Additionally, gains are being limited by weakening global demand.
The sudden embargo on Venezuela's exports has therefore sent refiners in the United States and elsewhere scrambling to find alternative supplies compatible with their equipment.
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