Oil gets a boost from Saudi output pledge, declining U.S. inventories

Mae Love
February 13, 2019

Brent crude futures have risen 20 percent in 2019 to around $63 a barrel, but most of that increase took place in early January.

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.

In a monthly report, OPEC said its oil output fell nearly 800,000 barrels per day in January to 30.81 million bpd.

Oil production in Venezuela, which has been rocked by a crippling economic crisis, spiralling political turmoil and USA sanctions, meanwhile sank by 59,000 barrels per day.

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.

"With so far no sign of change in government, we see increasing risks that production losses could be larger and sooner than our forecast for a 0.33 million-bpd supply loss in 2019", U.S. bank Goldman Sachs said in a note on Wednesday.

Compliance by non-OPEC participants was only 25 percent, however, it said.

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.

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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.

The IEA noted that new USA sanctions announced in January on Venezuela's state oil company PDVSA have not so far caused market jitters. "This is because, in terms of crude oil quantity, markets may be able to adjust after initial logistical dislocations", the group added.

USA 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.

Gasoline inventories for the same period rose 746,000 barrels.

Prices of the American reference for the sweet light crude oil are prolonging the recovery on Wednesday, trading at shouting distance from the $54.00 mark per barrel ahead of the EIA report.

"Oil prices have not increased alarmingly because the market is still working off the surpluses built up in the second half of 2018", the IEA said.

Helping to keep a lid on the market are adequate global inventories, the prospect of weakened demand tied both to U.S.

The biggest impact on demand will be a U.S. In the meantime, the markets seem well supported with buyers just waiting for any signs of increased demand.

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