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

Crude Oil

At 07:56 GMT, April WTI crude oil is trading $53.82, up $0.35 or +0.65% and April Brent crude oil is at $62.94, up $0.52 or +0.83%. The supply cuts, which also include Russian Federation and nine other non-OPEC producers, took effect on January 1.

The Organization of the Petroleum Exporting Countries (OPEC) said on Tuesday it had cut output by nearly 800,000 bpd in January to 30.81 million bpd.

"Crude-oil quality is another issue, and, in the wider context of supply in the early part of 2019, it is even more important".

Previous pacts by OPEC and its partners including Russian Federation, often called OPEC+, to cut back production have been marked by initial low compliance rates by certain countries.

However, rising United States oil production, fighting near Libya's main oilfield, sanctions on Venezuela and suspense over whether Washington will grant more waivers to import Iranian oil leave markets unsure about broader supply.

Venezuela accounted for 16 percent of OPEC output and 8 percent of world production in 1970 but those percentages had fallen to just 5 percent and 2 percent respectively by 2017 (https://tmsnrt.rs/2E4Pfb9). The price has largely plateaued since then, in spite of the subsequent imposition of USA sanctions.

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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.

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

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.

On Tuesday, the American Petroleum Institute (API) said USA crude inventories fell by 998,000 barrels in the latest week, trouncing forecasts by analysts in a Reuters poll for a rise of 2.7 million barrels.

Gasoline inventories for the same period rose 746,000 barrels. A day later, the EIA confirmed the inventory build, but a smaller one at 1.3 million barrels.

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. -China trade and broader economic concerns, and the approach of seasonal refinery maintenance.

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