Opec tightens its taps as global oil demand stalls

Galtero Lara
Febrero 14, 2019

The barrel of West Texas Intermediate is up for the second session in a row today on the back of firm optimism over a potential agreement in the US-China trade talks, all despite latest news seems to leave the final decision to a Trump-Xi meeting.

Under the deal reached in December and which came into effect at the start of the year, Saudi Arabia's target production is 10.311 million bpd.

The global oil market remains well supplied, the International Energy Agency said in its monthly market report on Wednesday, and output would still likely outstrip demand this year, despite OPEC's efforts and U.S. sanctions on Iran and Venezuela.

The rapid growth in United States production, led by shale oil output, has led to an unwelcome build-up in inventories of crude and refined products while refining margins for the gasoline it yields have collapsed around the world.

However, analysts are warning that record USA supply and anticipated economic slowdown later this year might start capping the world's oil markets.

"This is because, in terms of crude oil quantity, markets may be able to adjust after initial logistical dislocations", the group added.

And while OPEC and its allies, including Russian Federation, withhold supply, U.S. output is expected to rise further, with the Energy Information Administration saying on Tuesday that United States crude production is expected to reach 13.2 million bpd by 2020. Analysts were looking for a build of about 2.300 million barrels.

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Sanctions announced last month prohibit USA corporations and persons from financial transactions with state-owned oil company PDVSA.

The U.S. Treasury's guidance, which appears deliberately unclear, has left many third-country buyers uncertain about whether they can do business with PDVSA without also falling foul of sanctions.

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.

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.

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).

John Kemp is a Reuters market analyst.

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