Crude Oil Analysis: Oil Rises on Aggressive Saudi Action

Andrew Cummings
February 13, 2019

Oil prices have remained steady near $60 a barrel in London even as turmoil builds in Venezuela, as markets work through plentiful supplies accumulated a year ago, the IEA said.

On Tuesday, the Saudis said it had cut its output by nearly 800,000 bpd in January to 30.81 million bpd.

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. That amounts to 86 percent compliance with pledged cuts, according to a Reuters calculation.

According to the agreement clinched in December, Saudi Arabia alone has reportedly reduced production of crude by almost 400,000 barrels per day to 10.24 million barrels.

Kazakhstan increased production, while Azerbaijan only cut 15 percent of what it had promised.


The IEA raised its estimate of growth in crude supply from outside the Organization of the Petroleum Exporting Countries to 1.8 million bpd in 2019, from 1.6 million bpd previously.

Overall, global supply fell by 1.4 mbd to 99.7 mbd in January, according to the IEA, which said cuts imposed by authorities in the province of Alberta in Canada, which is not party to the Vienna Agreement, also contributed to the reduction.

OPEC forecast global oil demand would grow by 1.24 million bpd, down 50,000 bpd from last month and weaker than 1.47 million in 2018.

Just months earlier, they had relaxed production caps as prices shot higher on market worries about the impact of U.S. sanctions on Iran.

"In quantity terms, in 2019, the USA alone will grow its crude oil production by more than Venezuela's current output".


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

OPEC pumped about 30.8 million barrels a day in January, just above the 30.7 million required on average in 2019.

"The imposition of sanctions by the United States against Venezuela's state oil company Petroleos de Venezuela (PDVSA) is another reminder of the huge importance for oil of political events", the IEA said.

Should US-China talks succeed, the US bank said oil markets would "switch attention from macro concerns impacting future demand growth to physical tightness and geopolitical risks impacting immediate supply". "Saudi Arabia, are intending to push more barrels into the market to offset shortfalls" of heavier grades of crude, the IEA warned.


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