Oil prices edge lower, tightening supply outlook supports

Gladys Abbott
February 7, 2019

There is ample spare capacity in other oil producers and strategic reserves to compensate for a loss of Venezuela's crude exports, helping explain the tepid reaction of global oil prices to USA sanctions announced a week ago.

OPEC, Russia and other non-OPEC producers - an alliance known as OPEC+ - agreed in December to reduce supply by 1.2 million barrels per day (bpd) from January 1.

"You have the sanctions on Venezuela, on top of the reduced supply from Saudi Arabia", Olivier Jakob, oil analyst at Petromatrix, said as cited by Reuters. "There's no sign of overhang in the crude oil markets". U.S. West Texas Intermediate (WTI) crude was down 33 cents at $53.33.

Prices also dipped after data showed US crude inventories at Cushing, Oklahoma, the delivery point for USA crude futures, rose by more than 943,000 barrels in the week to February 1, traders said, citing data from market intelligence firm Genscape.

"Disappointing U.S. factory data sparked fresh concerns over a slowdown in the global economy, although losses were limited as OPEC cuts and U.S. sanctions on Venezuela continued to point to a tighter supply picture", Cantor Fitzgerald Europe said.

Global benchmark Brent crude dropped almost 1% to $61.39 a barrel while WTI futures were down more than 1% at $53.12 a barrel. The worry was that the sanctions, targeting specifically PDVSA, will result in a shortage of heavy crude for USA refineries on the Gulf Coast, but in actuality, there seems to be sufficient spare production capacity around the world to fill any supply gap resulting from the latest developments in and around Venezuela.

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Inventory data from the Energy Information Administration will be released later today.

Together with Libya and Iran, it is exempt from the latest OPEC-led supply cut. "All in all this report is bullish for crude oil and refined product prices".

National Security Adviser John Bolton and Treasury Secretary Steven Mnuchin announce sanctions against Venezuela state-owned oil company PDVSA and embattled president Nicolas Maduro. A stronger dollar makes greenback-denominated commodities more expensive for holders of other currencies.

International Brent crude oil futures were at $62.05 per barrel, up 7 cents, after closing down 0.8 per cent in the previous session.

Worries about weaker global economic growth and the U.S.

U.S. President Donald Trump last week said he would meet his Chinese counterpart Xi Jinping in the coming weeks to try to settle the dispute.

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