Saturday, 16 February, 2019

Goldman expects oil prices to rise on 'shock and awe' output cuts

OPEC cuts & US sanctions against Iran and Venezuela boosting global crude prices Opec tightens its taps as global oil demand stalls
Laurie Berry | 13 February, 2019, 21:41

Most of that reduction has been thanks to Saudi Arabia.

The United States' Energy Information Administration said on Tuesday that they intended for the country's crude production to hit a new record in 2020 - around 13.2 million barrels per day.

USA sanctions on Venezuela's state-owned oil company are tightening the global oil market and sending refiners around the world scrambling to find replacements for the country's diesel-rich heavy and extra heavy crudes.

Traders are bracing for increasing supplies at Cushing, Oklahoma, the delivery point for benchmark US crude futures, as refinery outages could create a supply backlog that will add to inventories that are already at the highest in more than a year.

The EIA, however, added a note of caution that US production would be capping oil price gains.

"Oil prices have not increased alarmingly because the market is still working off the surpluses built up in the second half of 2018, when global supply is estimated to have exceeded demand by 1.3 mbd", said the IEA. Venezuela, Libya and Iran are exempt from production cuts.

Analysts say a rise in oil prices is good for the country that sank into recession past year as a result of sharp dip in oil prices.

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.

Gervonta Davis knocks out Hugo Ruiz in last second of first spherical
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Currently, Iran exports a little more than 1 mb/d of crude oil, less than a half of what it sold last May and the rest of its production is used domestically. Any economic slowdown could cap oil markets. Distillate inventories decreased by 2.481 million barrels versus an expected draw of 1.090 million barrels.

Venezuela accounted for 1 million bpd of heavy-sour crude production out of a worldwide total of 7 million bpd in 2017 ("World Oil Review", ENI, 2018).

Numerous region's refineries are new and are optimised to process heavy and sour crudes.

Basra Heavy, as assessed by Argus Media, was at $60.17 a barrel on Tuesday, while Bonny Light was at $64.38.

"Over the past two years, global oil demand has turned out to be higher than expected, supported by healthy economic activities, particularly in the OECD", said the report. "This is because, in terms of crude oil quantity, markets may be able to adjust after initial logistical dislocations", the group added.

The sudden embargo on Venezuela's exports has therefore sent refiners in the United States and elsewhere scrambling to find alternative supplies compatible with their equipment.

John Kemp is a Reuters market analyst.

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