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Oil remains bid in Asia on Venezuela sanctions and OPEC output cut
13 February 2019, 09:41 | Joann Bryant
OPEC cuts & US sanctions against Iran and Venezuela boosting global crude prices
The OPEC, which Saudi Arabia de-facto leads as the world's top crude oil exporter, said on Tuesday that it had cut its output by nearly 800,000 bpd in January to 30.81 million bpd.
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.
Anxious by a drop in oil prices and rising supplies, the Organization of the Petroleum Exporting Countries and its allies including Russian Federation agreed in December to make supply cuts. OPEC members (excluding Iran, Venezuela and Libya) are responsible for two thirds of production cut.
"Some recent positive developments could support the global economy at its current level, including the recovery in oil prices, possible progress in U.S. -China trade talks", JP Morgan said in a weekly note. The improvement in the global risk tone has also provided a lift for Brent crude futures.
Heavy crudes are much harder to refine and tend to contain significant quantities of sulfur and other impurities that are costly to remove, which is why they sell at a hefty discount to medium and light oils.
The bank also said that crude supply was being disrupted by US sanctions that kicked in last month on Venezuela's oil exports.
Oil descended into a bear market in November, a swift drop from four-year highs seen in October, as traders grew anxious over strengthening U.S. production and an outlook for softer global fuel demand.
But Asia is facing the loss of nearly 700,000 bpd of heavy crude from Venezuela by April, coincidentally the same month that Trump's waivers on Iranian crude exports are due to expire.
According to IEA data Russian Federation made only 18 percent of its pledged cut of 0.23 mbd.
This could rise in coming months as Saudi Arabia voluntarily lowers supply by more than it agreed.
Saudi's Energy Minister Khalid al-Falih announced the move in an interview with the Financial Times published Tuesday, as the kingdom seeks to drive up oil prices to help fund an economic transformation plan.
USA bank Morgan Stanley said the surge in US crude oil production, which tends to be light in quality and which rose by more than 2 million barrels per day (bpd) a year ago to a record 11.9 million bpd, had resulted in overproduction of gasoline.
This implies that the global market would see a slight surplus of about 200,000 bpd in 2019 should OPEC keep pumping at January's rate although - other things being equal - the Saudi plan to reduce supply further will offset this.
The IEA kept forecasts for global oil demand unchanged, despite signs of slowing economic growth, as consumption remains supported by lower crude prices and the startup of petrochemical projects in China and the U.S. Distillate inventories decreased by 2.481 million barrels versus an expected draw of 1.090 million barrels. This article is strictly for informational purposes only.
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