Saturday, 23 February, 2019

Opec tightens its taps as global oil demand stalls

Crude Oil Gold Natural Gas Opec oil production falls as Saudi Arabia slashes output
Nellie Chapman | 13 February, 2019, 19:06

Venezuela's heavy crudes, such as Merey, have few close substitutes, with the nearest being grades such as Brazil's Marlim, Mexico's Maya, Canada's Bow River and Cold Lake, or Iraq's Basra Heavy.

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.

On the supply side, Saudi Arabia, the defector leader of OPEC, said it was cutting daily production and exports by a further 500,000 barrels per day (bpd) on top of its agreed OPEC quota reduction.

Saudi Arabia's Energy Minister, Khalid al Falih, told the Financial Times that the kingdom would reduce production to about 9.8million bpd in March, down from a record high of 11.1million bpd in November.

The IEA noted that new USA sanctions announced in January on Venezuela's state oil company PDVSA have not so far caused market jitters. Oman, another medium crude, has moved to a premium over Brent, a light one.

In the report, OPEC cut its forecast for 2019 world economic growth by 0.2 percentage point to 3.3 percent and highlighted a range of headwinds, including a slowdown in global trade. 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.

"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.

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.

Saudi Aramco is the world's biggest oil company, producing ten million barrels of oil a day and managing 260 billion barrels in reserves.

However, analysts are warning that record U.S. supply and anticipated economic slowdown later this year might start capping the world's oil markets.

Sanctions announced last month prohibit US corporations and persons from financial transactions with state-owned oil company PDVSA.

Venezuela has tried to find alternative customers, especially in Asia, but under USA pressure many buyers there are also shying away from dealing with PDVSA.

The U.S. administration likely calculated any fallout from sanctions on oil prices would be small given the limited volumes of crude involved and the expectation that the standoff would be resolved quickly. "Saudi Arabia, are intending to push more barrels into the market to offset shortfalls" of heavier grades of crude, the IEA warned.

The agency also lowered its forecast for demand for OPEC crude, production of which the group has pledged to cut by 800,000 bpd this year as part of an agreement with Russian Federation and other non-OPEC producers such as Oman and Kazakhstan.

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

US sanctions on Iran and Venezuela have choked off supply of the heavier, more sour crude that tends to yield larger volumes of higher-value distillates, as opposed to gasoline.

Middle distillates are used mostly in freight transportation as well as manufacturing, mining and farming, and are particularly valuable late in the business cycle when economic activity is near to the peak.

"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. "This is because, in terms of crude oil quantity, markets may be able to adjust after initial logistical dislocations", the group added.