Friday, 22 March, 2019

Venezuela's falling oil supply is a major 'challenge' to global energy markets

The United States is set to drive global oil supply growth over the next five years the IEA noted. — AFP  File The United States is set to drive global oil supply growth over the next five years the IEA noted. — AFP File
Priscilla Morrison | 17 March, 2019, 12:24

Energy prices fell off a cliff in late 2014 but have started to rebound on the back of agreed cuts by OPEC in Vienna previous year.

The Organization of the Petroleum Exporting Countries (OPEC) and some non-aligned producers including Russian Federation have been withholding oil supply since the start of the year to tighten global markets and prop up crude prices.

The IEA said OPEC+ production was 0.24 mbd above the target of 44.3 mbd, with overall compliance with reduction targets at 80 percent. This led to the US taking a number of steps in the 1980s to take away OPEC's monopoly in determining oil prices, and the USA has strengthened global commodity markets with Chicago and NY.

First and foremost is the cut in production agreed to by OPEC and some non-OPEC countries, which also equals 1.2 million barrels a day.

Venezuela's oil industry is at risk of collapsing due the problems with the economy and power grid, according to the International Energy Agency.

An unexpected dip in US crude oil inventories and production also supported prices, traders said.

"OPEC's compliance was a robust 94 percent, compared to 51 percent from non-OPEC", said the IEA, adding that major producer Russian Federation was continuing to adjust its production gradually.

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A falling U.S. dollar could help the situation as well, and as the Saudi cuts continue to grip the market, I think overall we have a constructive outlook for crude oil as not only do all those things coming together, but we also have Chinese stimulus that will push demand on the mainland as well. We will observe the economic-political consequences of the USA cornering Saudi Arabia, Iran and Venezuela in the global oil game. 'This highlights the continued shared responsibility of all participating producing countries to avoid a relapse of the imbalance and continue to support oil-market stability in 2019.

With production in Canada also increasing, and most of its exports moving to U.S. refineries, more USA crude should be available for export.

"With OPEC's cuts in full swing. persistent supply issues and a deteriorating picture on Venezuela, oil is looking well supported", said Jasper Lawler, head of research at futures brokerage London Capital Group. According to the IEA's report, this means for OPEC that not only it has lost its once biggest customer, but also that, with the rise of shale oil in the USA, it will continue to lose its power in the global energy market until the mid-2020s. With increasing competition, the global demand for OPEC production will not return to pre-2016 levels during the period in question. The share of petroleum products in the country's exports is 1.54 percent.

After oil prices had a rollercoaster ride at the end of a year ago, OPEC+ agreed to cut production by 1.2 mbd in January to June.

USA crude oil production also dipped, falling by 100,000 barrels per day (bpd) to 12 million bpd.

Energy markets are being buffeted by a number of economic crosswinds. Production in Iran and Libya, also exempt, was little changed.

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