Sunday, 25 August, 2019

Crude Oil Analysis: Oil Rises on Aggressive Saudi Action

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
Ginger Lawrence | 13 February, 2019, 19:06

OPEC production fell to a four-year low in January as the cartel applied a new pact to boost global oil prices, the International Energy Agency said Wednesday, but Russian Federation and other ex-Soviet states failed to cut back output as much as promised.

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.

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.

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

With the supply cut delivered in January, OPEC has achieved 86 percent compliance with pledged reductions, according to a Reuters calculation - a high rate by OPEC's past standards.

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

Despite the OPEC cuts and crisis in Venezuela, analysts said global oil markets remain well supplied.

The IEA kept forecasts for global oil demand unchanged, despite signs of slowing economic growth, as consumption remains supported by lower crude prices and the startup of petrochemical projects in China and the U.S.

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

The IEA further added that traders shouldn't expect USA sanctions against Venezuela to fuel a rally in oil prices.

"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 United States think-tank, said in a note.

While US crude production is expected to grow by an amount that exceeds Venezuela's current output, the IEA warned that quantity is not the only important issue.

OPEC pumped about 30.8 million barrels a day in January, just above the 30.7 million required on average in 2019.

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.

Despite the political rifts between Venezuela and the United States, US refiners have in the past been some of the biggest buyers of Venezuelan crude.

Estimates for how much crude is needed from OPEC were lowered by 300,000 barrels a day from last month's assessment amid surging supplies from its rivals, driven by the USA shale boom.