Published: Thu, February 14, 2019
Markets | By Otis Pena

Global oil supply to swamp demand in 2019 despite output cuts - IEA

Global oil supply to swamp demand in 2019 despite output cuts - IEA

In another bullish sign this week, President Donald Trump struck a conciliatory tone on trade talks with China, suggesting higher tariffs might be averted.

In its monthly report released yesterday, OPEC said its crude output fell 797,000 barrels per day (bpd) in January compared with the prior month.

Courvalin said the main OPEC oil producers are making deeper-than-expected production cuts.

On the broader picture, the ongoing OPEC+ agreement to curb oil production, United States sanctions against Venezuelan and Iranian oil exports and the so-called "Saudi Put" should keep a firm floor under crude prices.

Oil has advanced around 19 percent this year as the OPEC+ alliance of producers cut output, but the rally has sputtered in February amid record US shale drilling.

US sanctions on Iran and Venezuela, together with OPEC's output cuts, have therefore removed mostly medium and heavy oils from the market, leaving lighter grades relatively unaffected. Analysts were looking for a build of about 2.300 million barrels.

OPEC, Russia and other non-OPEC producers, an alliance known as OPEC+, agreed in December to reduce supply by 1.2 million bpd from January 1 to prevent excess supply building up.

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

The ongoing closure of parts of the Keystone pipeline that brings Canadian oil into the United States also helped prop up WTI, traders said.

World oil markets have been on a rollercoaster ride in recent months, with the OPEC+ group agreeing to cut back production again from January in order to reverse a slump in oil prices on abundant production and worries about slower global growth.

Middle distillates are used mostly in freight transportation as well as manufacturing, mining and farming, and are particularly valuable late in the business cycle when economic activity is near to the peak.

If refiners are unable to source enough heavy and extra heavy crude, they will buy the next best alternative, in this case medium density crudes, so the impact of sanctions is rippling through the entire oil market.

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