Oil Rises After Saudi Arabia's Output Pledge

Crude Oil

Crude Oil

Oil prices have remained steady near $60 a barrel in London even as turmoil builds in Venezuela, as markets work through plentiful supplies accumulated past year, the IEA said.

In its monthly report released yesterday, OPEC said its crude output fell 797,000 barrels per day (bpd) in January compared with the prior month.

OPEC, Russia and other non-OPEC producers, an alliance known as OPEC+, agreed in December to reduce supply by 1.2 million bpd from January 1 to prevent excess supply building up. "Despite many uncertainties, EIA believes strong growth in global oil production will put downward pressure on prices", Capuano said.

The IEA said that compliance with the so-called Vienna Agreement was 86 percent by OPEC states, with Saudi Arabia, UAE and Kuwait cutting by more than promised.

Venezuela accounted for 16 percent of OPEC output and 8 percent of world production in 1970 but those percentages had fallen to just 5 percent and 2 percent respectively by 2017 (https://tmsnrt.rs/2E4Pfb9).

The production cuts from OPEC and its non-OPEC allies, the Saudi overcompliance with the cuts and the pledge to cut even deeper next month, the unplanned outage in Libya's Sharara oil field, and the reduction in Alberta's production are tightening global oil supply, according to the EIA.

The world's largest oil producers slashed their crude production last month as global economic jitters drag on oil demand forecasts.

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Just months earlier, they had relaxed production caps as prices shot higher on market worries about the impact of United States sanctions on Iran.

"Oil production is rapidly falling and companies that normally resell Venezuelan crude have not found ways to mitigate the effect of the U.S. sanctions", Barclays bank said.

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

"Oil markets continue to focus at the macro level on the dual notions of adequate supply and softening demand", Frank Verrastro, senior vice president for the Energy and National Security Program at the Center for Strategic and International Studies (CSIS), a USA think-tank, said in a note.

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. "Saudi Arabia, are intending to push more barrels into the market to offset shortfalls" of heavier grades of crude, the IEA warned.

The "call" on OPEC crude is now forecast at 30.7 million bpd in 2019, down from the IEA's last estimate of 31.6 million bpd in January.

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