Venezuela sanctions leave oil market short of heavy crude

Irving Hamilton
February 13, 2019

The global oil market remains well supplied, the International Energy Agency said in its monthly market report on Wednesday and output would still likely outstrip demand this year, despite OPEC's efforts and United States sanctions on Iran and Venezuela.

In a monthly report, OPEC said its oil output fell nearly 800,000 barrels per day in January to 30.81 million bpd. The supply cuts, which also include Russian Federation and nine other non-OPEC producers, took effect on January 1.

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This rate could rise in coming months as top exporter and OPEC kingpin Saudi Arabia voluntarily lowers supply by more than it agreed.

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

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.

According to IEA data Russian Federation made only 18 percent of its pledged cut of 0.23 mbd.

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"Despite the forecast global oil inventory draws in February and lower forecast OPEC crude oil production in 2019 compared with the January STEO, EIA forecasts that USA crude oil production growth will offset decreases in OPEC production throughout the forecast".

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.

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.

Elsewhere, given the concerns surrounding rising United States crude production, focus will be on tonight's API crude oil inventory report.

Responding to the market concerns about potential oil demand as producers try to reverse massive dips in price at the end of 2018, Falih assured that the oil market is on the right track and will soon return to its balance.

But while Venezuela's crude now accounts for a very limited share of the global oil market, it plays a much more important role in the niche market for heavy crude.

OPEC's Vienna-based research department reduced its estimates for the average amount of crude the world requires from the group this year by 240,000 barrels a day to 30.59 million.

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