Opec tightens its taps as global oil demand stalls

13 February, 2019, 19:06 | Author: Brooke Harris
  • Crude Oil

OPEC production fell to a four-year low in January as the cartel applied a new pact to boost global oil prices, the International Energy Agency said Wednesday, but Russian Federation and other ex-Soviet states failed to cut back output as much as promised.

Oil Storage Tanks at Cushing, OKThe 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 cartel's scale-back was in line with an agreement by Opec and non-Opec members in December to trim production by 1.2 million barrels a day from January 1.

The major oil exporters in the Middle East Gulf (Saudi Arabia, Iraq, United Arab Emirates, Kuwait and Iran) market mostly medium and heavy crudes.

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.

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

The IEA further added that traders shouldn't expect US sanctions against Venezuela to fuel a rally in oil prices.

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The IEA left its demand growth forecast for 2019 unchanged from its last report in January at 1.4 million barrels per day.

Despite the political rifts between Venezuela and the United States, US refiners have in the past been some of the biggest buyers of Venezuelan crude.

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

"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.

The country's very dense crudes, some of which barely float on water, are complicated to process and sell for a large discount compared to other producers.

In a monthly report, the Organization of the Petroleum Exporting Countries lowered its forecast for 2019 economic growth and said demand for its crude would fall to 30.59 million barrels per day, 240,000 bpd less than predicted last month.

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.

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