Oil price rises after panic at OPEC

Oil price rises after panic at OPEC

Oil price rises after panic at OPEC

Saudi Arabia plans to reduce its oil exports to 6.9 million barrels per day (bpd) in March, down from 8.2 million bpd past year, the country's energy minister, Khalid Al-Falih, announced yesterday.

The price has largely plateaued since then, in spite of the subsequent imposition of US sanctions.

Oil has advanced around 18% this year as the OPEC+ coalition cuts production, although the rally has sputtered this month amid record American shale output and rising angst over the trade war.

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 United States sanctions on Iran and Venezuela.

The demand for the past year has been adjusted downwards. Crude prices have since recovered roughly 20 percent from the annual lows of last December, bolstered primarily by the decision to cut supplies.

The cartel has joined forces with 10 non-member nations including Russian Federation to trim output to avoid a repeat of the 2014 crash when prices dove to below $30 a barrel - down from over $100 - due to a glut in supplies and weakening global demand.

The combination of the OPEC-led production cuts, the increased reduction by the Saudis and in a limited way, the sanctions against Venezuela are helping to underpin prices, but in order to put the market over the top, demand is going to have to increase. Nonetheless, the following morning it trimmed that forecast by 60,000 barrels a day.

They were designed this way to take advantage of the historical discount these grades were priced at relative to light, sweet crudes, such as global benchmarks Brent and West Texas Intermediate (WTI), and oil from West African producers such as Nigeria and Angola.

The EIA raised its forecast of 2019 USA oil production by 340,000 barrels a day, with more than a third of that coming from the Gulf of Mexico and the increase heavily skewed to the second half of the year. Despite these moves, on a macro level, the global oil market remains well-supplied. But a shortfall of heavy-sour crude can cause complications for many refiners, such as those along the U.S. Gulf Coast, configured to process it. OPEC also raised its forecast, but by a much smaller 94,000 barrels.

Opec members vowed to cut 800,000 barrels a day of that amount, so January's figures fell just 3,000 barrels short of that commitment.

An OPEC+ output deal that was originally meant to rebalance oil supply and demand in six months is now set to last five times as long as initially planned.

Note: Julian Lee is an oil strategist who writes for Bloomberg.

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