Oil rises after Saudi output pledge, declining USA inventories

The Opec+ cuts are taking effect and US data is starting to reflect these changing market conditions. — Reuters  file

The Opec+ cuts are taking effect and US data is starting to reflect these changing market conditions. — Reuters file

"Despite many uncertainties, EIA believes strong growth in global oil production will put downward pressure on prices", Capuano said.

However, rising U.S. 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.

Brent crude, the global benchmark, was up $1.07, or 1.7 percent, at $63.49 a barrel at 9:55 a.m. EST (14:55 GMT), while U.S. West Texas Intermediate futures were up 91 cents, or 1.7 percent, at $54.01.

Supply issues in OPEC-member Venezuela are also bolstering oil prices as the South American country suffers a political and economic crisis, with Washington introducing petroleum export sanctions against state-owned energy firm PDVSA.

"In quantity terms, in 2019, the USA alone will grow its crude oil production by more than Venezuela's current output".

The oil price has risen by 20 percent so far this year, yet most of that increase materialised in early January, before the imposition of USA sanctions on Venezuela's energy sector. American supply growth this year will exceed Venezuela's total output, the IEA said, another signal that OPEC's efforts to buoy prices may ultimately prove self-defeating.

U.S. crude output is expected to grow by 1.45 million bpd this year and by another 790,000 bpd next year to hit 13 million bpd in 2020, according to the Energy Information Administration.

Venezuela was once a major oil exporter to the United States, but shipments have fallen from 1.4 million bpd in 1998 to around 500,000 bpd in 2018 ("Petroleum supply monthly", EIA, Jan 2019).

However, analysts are warning that record USA supply and anticipated economic slowdown later this year might start capping the world's oil markets. The price has largely plateaued since then, in spite of the subsequent imposition of USA sanctions.

Global oil cartel Opec said Tuesday it sharply reduced crude oil production last month, after heavyweight Saudia Arabia slashed output and exports fell in crisis-hit Venezuela.

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.

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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