Saturday, 23 February, 2019

OPEC cuts & United States sanctions against Iran and Venezuela boosting global crude prices

The Opec+ cuts are taking effect and US data is starting to reflect these changing market conditions. — Reuters  file The Opec+ cuts are taking effect and US data is starting to reflect these changing market conditions. — Reuters file
Nellie Chapman | 14 February, 2019, 10:56

A view of Saudi Aramco's Ras Tanura oil refinery and oil terminal in Saudi Arabia.

A U.S. House of Representatives committee approved the bill known as No Oil Producing and Exporting Cartels Act, or NOPEC, last week.

With OPEC engaged in supply management and the Middle East entangled in political conflicts while production outside the group surges, Bank of America Merrill Lynch said OPEC's global market share would fall as its outright output drops to 29 million barrels per day (bpd) in 2024 from 31.9 million bpd in 2018.

OPEC members along with allies including Russian Federation agreed in early December to trim production by 1.2 mbd from January 1, in a bid to eliminate a production glut and shore up prices.

"Maintenance is temporary, weather is temporary, but Saudi Arabia and Venezuela are longer-term impacts", Sallee said. That amounts to 86 percent compliance with pledged cuts, according to a Reuters calculation.

Kazakhstan increased production, while Azerbaijan only cut 15 percent of what it had promised.

Saudi Arabia will reduce oil production to nearly 9.8 million barrels per day in March, Minister of Energy, Industry and Mineral Resources and Chairman of Saudi Aramco Khalid Al-Falih told the Financial Times.

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

Those fears dissipated after Washington eventually granted waivers allowing several countries to continue to import Iranian oil.

Oil prices are gaining on Tuesday as the OPEC-led supply deal and United States penalties against Iran and Venezuela begin to take hold after crude futures hit two-week lows earlier this week.

IEA figures show Venezuala's output dropping by roughly 30,000 barrels per day to 1.26 mbd.

U.S. West Texas Intermediate (WTI) crude oil futures were at $52.78 per barrel at 0329 GMT, up 37 cents, or 0.7 percent, from their last close.

International Brent crude oil futures had yet to trade.

The country's very dense crudes, some of which barely float on water, are complicated to process and sell for a large discount compared to other producers. "Saudi Arabia, are intending to push more barrels into the market to offset shortfalls" of heavier grades of crude, the IEA warned.

The March production figure means Saudi would be voluntarily cutting output by more than 500,000 bpd below its pledged production level under a deal between the Organization of the Petroleum Exporting Countries and allies led by Russian Federation.