OPEC cuts & USA sanctions against Iran and Venezuela boosting global crude prices

Crude Oil

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.

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Wednesday, supported by deeper-than-expected OPEC-led production cuts and the impact of U.S. -led sanctions on Venezuela oil exports.

Saudi Arabia intends to begin exploring for and producing oil and gas overseas, the kingdom's energy minister has said. OPEC supply cuts, coupled with United States sanctions on Iran and Venezuela, have eased concerns of a glut.

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

Additionally, the International Energy Agency said energy market participants may be able to adjust to US sanctions against Venezuela's crude industry.

In the report, OPEC cut its forecast for 2019 world economic growth by 0.2 percentage point to 3.3 percent and highlighted a range of headwinds, including a slowdown in global trade.

"In terms of crude oil quantity, markets may be able to adjust after initial logistical dislocations (from Venezuela sanctions)", the Paris-based IEA said.

Crude supply will average 12.41 million barrels a day this year and 13.2 million in 2020, the U.S. Energy Information Administration said on Tuesday, up more than 300,000 barrels a day from the previous month's estimates.

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 EIA, however, added a note of caution that US production would be capping oil price gains.

Most new supply is coming from the United States, where crude production rose by more than 2 million bpd a year ago to a record 11.9 million bpd, making the country the world's biggest oil producer ahead of Russian Federation and Saudi Arabia.

In effect, sanctions have shifted the balance of global oil production in the direction of lighter crudes, at the same time that the economy and forthcoming regulations are pushing refinery demand towards heavier grades.

Refineries are built to handle a certain quality of crude, and those which process so-called heavy crude from Venezuela, Canada or the Middle East can not be easily converted to treat the light shale oil that is now being produced in greater quantities in the United States.

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