Published: Wed, February 13, 2019
Money | By Ralph Mccoy

Oil rises 2% on Saudi Arabia, OPEC cuts

Oil rises 2% on Saudi Arabia, OPEC cuts

The global oil market remains well supplied, the International Energy Agency said in its monthly market report on Wednesday, and output should still outstrip demand this year.

And while OPEC and its allies, including Russian Federation, withhold supply, United States output is expected to rise further, with the Energy Information Administration saying on Tuesday that U.S. crude production is expected to reach 13.2 million bpd by 2020.

A general view shows Ras Tanura's oil production plant near Dammam in Saudi Arabia's eastern province.

The IEA said that compliance with the so-called Vienna Agreement was 86 percent by OPEC states, with Saudi Arabia, UAE and Kuwait cutting by more than promised.

Additionally, the International Energy Agency said energy market participants may be able to adjust to US sanctions against Venezuela's crude industry. Forecasts for non-OPEC supply were lifted by an improved outlook for the Gulf of Mexico, while projections for global demand were lowered as a result of weakness in Europe and the Americas.

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).

Those fears dissipated after Washington eventually granted waivers allowing several countries to continue to import Iranian oil.

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

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In the report, OPEC cut its forecast for 2019 world economic growth by 0.2 percentage point to 3.3 percent and highlighted a range of headwinds, including a slowdown in global trade.

"Oil markets continue to focus at the macro level on the dual notions of adequate supply and softening demand", Frank Verrastro, senior vice president for the Energy and National Security Program at the Center for Strategic and International Studies (CSIS), a USA think-tank, said in a note.

Most of those crudes have an even higher sulfur content than Venezuela's, which will require extra processing to make fuels of acceptable quality, and in any event the quantities are limited in the short term.

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.

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.

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 also raised its estimate for the increase in non-OPEC crude supply in 2019 to 1.8 mbd, which is 0.3 mbd higher than previously.

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