Global oil supply to ‘swamp’ demand in 2019 despite output cuts, says IEA

Russia speeds up oil output cuts on Feb 1-12 – source

LONDON, Feb 13, (RTRS): The global oil market will struggle this year to absorb fast-growing crude supply from outside OPEC, even with the group’s production cuts and US sanctions on Venezuela and Iran, the International Energy Agency said in a report on Wednesday.

The IEA left its demand growth forecast for 2019 unchanged from its last report in January at 1.4 million barrels per day.

“It is supported by lower prices and the start-up of petrochemical projects in China and the US. Slowing economic growth will, however, limit any upside,” the agency said.

The IEA raised its estimate of growth in crude supply from outside the Organization of the Petroleum Exporting Countries to 1.8 million bpd in 2019, from 1.6 million bpd previously.

The agency also lowered its forecast for demand for OPEC crude, production of which the group has pledged to cut by 800,000 bpd this year as part of an agreement with Russia and other non-OPEC producers such as Oman and Kazakhstan.

The “call” on OPEC crude is now forecast at 30.7 million bpd in 2019, down from the IEA’s last estimate of 31.6 million bpd in January.

US sanctions on Iran and Venezuela have choked off supply of the heavier, more sour crude that tends to yield larger volumes of higher-value distillates, as opposed to gasoline. The move has created disruption for some refiners, but has not led to a dramatic increase in the oil price in 2019.

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

“Stocks in most markets are currently ample and ... there is more spare production capacity available.”

Production

Venezuela’s production has almost halved in two years to 1.17 million bpd, as an economic crisis decimated its energy industry and US sanctions have now crippled its exports.

Brent crude futures have risen 20 percent in 2019 to around $63 a barrel, but most of that increase took place in early January. The price has largely plateaued since then, in spite of the subsequent imposition of US sanctions.

“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.

“In quantity terms, in 2019, the US alone will grow its crude oil production by more than Venezuela’s current output. In quality terms, it is more complicated. Quality matters.”

Meanwhile, Russian average oil production at was 11.34 million barrels per day (bpd) on Feb 1-12, down by 70,000 bpd from the October level used as a reference month for the global oil production cut deal, an energy industry source told Reuters.

OPEC and other global oil producers agreed in December to cut their combined output by 1.2 million bpd in order to support oil prices and try to balance the market. Russia is cutting from its October level of 11.41 million bpd.

Energy Minister Alexander Novak said this month that Russian oil production decreased by 47,000 bpd in January from October.

The energy ministry declined to comment.

OPEC member nations could decide once more to reduce their oil output when they meet again in April, believes Algeria’s energy minister.

Speaking to reporters at African Nuclear Energy Commission talks, Mustapha Guitouni said the influential global oil producing cartel is “able” to make a further reduction.

In December 2018, OPEC nations meeting in Vienna unanimously cut production by 1.2 million barrels leading to stability in prices in the USD 60-64 range.