Oil Markets In Limbo Ahead Of OPEC Meeting

Irving Hamilton
March 18, 2019

In its Oil Market Report released on March 15, the IEA (International Energy Agency) estimated that the oil market will fall into a deficit of 0.5 MMbpd (million barrels per day) in Q2 2019, which could help United States crude oil prices to easily move above the psychologically important level of $60.

The OPEC-led production cuts which began on January 1 and the US sanctions against Iran and Venezuela have been carrying crude oil prices higher for months, but gains have been limited by concerns over rising USA inventories and production.

West Texas Intermediate for April delivery climbed as much as 34 cents to US$58.95 a barrel on the New York Mercantile Exchange and traded at US$58.86 at 5.36pm in Tokyo.

Global benchmark Brent crude was trading at $67.38 per barrel at 0638 GMT with a 0.3 percent gain after closing Thursday at $67.19 a barrel.

OPEC sources have said an extension of the pact is the likely scenario.

After the review meeting on March 17 and 18, ministers from OPEC+ alliance will meet in Vienna next month, and again in June, to decide on output policy for the second half of the year.

"Therefore, in the event of a major loss of supply from Venezuela, the potential means of avoiding serious disruption to the oil market is theoretically at hand", said the IEA, adding that "production cuts have increased the spare capacity cushion".

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Goldman expects demand for the first quarter of this year to grow by almost 2 million bpd, obliterating its earlier forecast for 1.1 million bpd and driven by consumption in emerging markets; as for worry over China demand waning, Goldman added that oil consumption in that country actually grew by 340,000 bpd in January and February.

OPEC's bearish demand outlook was offset by its apparent resolve to extend crude output cuts, agreed to by its members and allied producers, which have helped oil prices rise more than 20 percent this year.

The Paris-based IEA said the market could show a modest surplus in the first quarter of 2019 before flipping into a deficit in the second quarter by about 0.5 million bpd.

Yet prices have been prevented from rising further by concerns that an economic slowdown will soon start denting growth in fuel demand.

On Thursday, OPEC said its crude oil production dropped by 221,000 bpd in February to 30.55 million bpd. If the oil rig count fall continues further, it might drag USA crude oil production in the coming weeks.

Most of the Opec cartel, along with a number of non-Opec producer-nations led by Russian Federation and known collectively as Opec+, since January 1, have been working to reduce marketed crude by 1.2 million barrels per day (Mmbpd).

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