OPEC cuts 2019 oil demand forecast on global slowdown

Gladys Abbott
February 13, 2019

Oil prices rose on Tuesday amid OPEC-led supply cuts and USA sanctions against Iran and Venezuela, although analysts expect surging US output and concerns over economic growth to keep markets in check.

The EIA is set to release the weekly inventory report later on Wednesday, while in its Short-Term Energy Outlook (STEO) for February, the EIA said on Tuesday that "After two consecutive months of price declines, crude oil prices increased throughout January and into February as global oil supplies declined relatively quickly".

"Even so, headline benchmark crude oil prices have hardly changed on news of the sanctions".

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.

In turn, this spurred OPEC and its allies to impose new output restrictions at a meeting in early December, with these cuts to take effect from January.

The U.S. administration likely calculated any fallout from sanctions on oil prices would be small given the limited volumes of crude involved and the expectation that the standoff would be resolved quickly.

"We believe that oil is not pricing in supply-side risks lately as markets are now focused on US-China trade talks", JP Morgan said in a weekly note. The improvement in the global risk tone has also provided a lift for Brent crude futures.

Basra Heavy, as assessed by Argus Media, was at $60.17 a barrel on Tuesday, while Bonny Light was at $64.38.

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Saudi Arabia to reduce crude production by half a million bpd more.

Brent crude futures were up 1.17 USA dollars or 1.9 percent at 62.68 US dollars a barrel by 1135 GMT.

That figure remains far below the $85 a barrel hit in early October before prices slid back. That amounts to 86 percent compliance with pledged cuts, according to a Reuters calculation.

This could rise in coming months as Saudi Arabia voluntarily lowers supply by more than it agreed.

"In terms of crude-oil quantity, markets may be able to adjust after initial logistical dislocations", said the Paris-based IEA, which advises major economies on energy policy.

And further declines in Iran, Libya and Venezuela - exempt from the supply pact - could give a tailwind.

OPEC pumped about 30.8 million barrels a day in January, just above the 30.7 million required on average in 2019.

Output has gone into free fall as the country's isolation has increased, shrinking from 2.4 million bpd in 2016 to 2.0 million bpd in 2017 and 1.5 million bpd in 2018, according to the Joint Organisations Data Initiative. This article is strictly for informational purposes only.

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