Published: Wed, February 13, 2019
Markets | By Otis Pena

Venezuela sanctions leave oil market short of heavy crude

Venezuela sanctions leave oil market short of heavy crude

The cartel made the pledge previous year alongside major oil producing countries outside the cartel, including Russian Federation, to safeguard oil prices against a global economic slowdown. The supply cuts, which also include Russian Federation and nine other non-OPEC producers, took effect on January 1.

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.

This rate could rise in coming months as top exporter and OPEC kingpin Saudi Arabia voluntarily lowers supply by more than it agreed.

Compliance by non-OPEC participants was only 25 percent, however, it said.

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

Heavy-sour supplies are common in OPEC, whose members started a new round of production cutbacks last month.

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.

The IEA noted that new USA sanctions announced in January on Venezuela's state oil company PDVSA have not so far caused market jitters.

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

Hopes of a US-China trade deal have lent extra oxygen to crude oil prices in past sessions and this should remain a key driver in the very near term.

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.

"Oil prices have not increased alarmingly because the market is still working off the surpluses built up in the second half of 2018", the IEA said.

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.

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. "Saudi Arabia, are intending to push more barrels into the market to offset shortfalls" of heavier grades of crude, the IEA warned.

Estimates for how much crude is needed from OPEC were lowered by 300,000 barrels a day from last month's assessment amid surging supplies from its rivals, driven by the US shale boom.

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