Global oil supply to swamp demand in 2019 despite output cuts - IEA

Cornelia Mascio
Febbraio 14, 2019

The global oil market will struggle this year to absorb fast-growing crude supply from outside OPEC, even with the group's production cuts and USA sanctions on Venezuela and Iran, the International Energy Agency said in a report on Wednesday.

The rapid growth in USA production, led by shale oil output, has led to an unwelcome build-up in inventories of crude and refined products while refining margins for the gasoline it yields have collapsed around the world.

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.

U.S. prices were also supported by a report from the American Petroleum Institute (API) on Tuesday showing that crude inventories fell by 998,000 barrels in the week to 8 February to 447.2 million, compared with analyst expectations for an increase of 2.7 million barrels.

"Oil production is rapidly falling and companies that normally resell Venezuelan crude have not found ways to mitigate the effect of the U.S. sanctions", Barclays bank said.

Nigeria, Africa's largest oil producer has $60 per barrel oil benchmark for this year's budget.

Supply issues in OPEC-member Venezuela are also bolstering oil prices as the South American country suffers a political and economic crisis, with Washington introducing petroleum export sanctions against state-owned energy firm PDVSA. OPEC's share of that cut is 800,000 bpd.

Production has been hampered by corruption, political interference and lack of foreign investment and technology to maintain existing fields and develop new ones.

The biggest prize in the contest for control of Venezuela and its state oil company Petroleos de Venezuela SA lies more than 2,000 miles northwest of Caracas. Analysts polled by Reuters forecast an increase of 2.7 million barrels.

The Organisation of the Petroleum Exporting Countries (OPEC) said on Tuesday that it had cut its output by nearly 800,000 bpd in January to 30.81 million bpd.

Optimism that a trade deal could be reached between the United States and China was boosted when U.S. President Donald Trump said talks were going "very well". "We're getting some support added by the report despite the obvious demand drop".

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. Despite these moves, on a macro level, the global oil market remains well-supplied. "Saudi Arabia, are intending to push more barrels into the market to offset shortfalls" of heavier grades of crude, the IEA warned.

Mid-distillates are especially prized at the moment with the forthcoming introduction of new bunker fuel regulations by the International Maritime Organization from the start of 2020. Additionally, gains are being limited by weakening global demand.

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