Oil up almost 2% on OPEC cuts, United States sanctions

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

The global oil market remains well supplied, the International Energy Agency said in its monthly market report on Wednesday and output would still likely outstrip demand this year, despite OPEC's efforts and USA sanctions on Iran and Venezuela.

The decrease by the group of 14 producer countries - which has long manipulated oil output to influence global prices in members' favor - brought total production to 30.81 million barrels per day in the month, the report said citing secondary sources.

Brent crude futures rose 88 cents to $63.30 a barrel by 0950 GMT, while U.S. crude oil futures gained 66 cents to trade at $53.76 a barrel.

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.

Oil prices are gaining on Tuesday as the OPEC-led supply deal and USA penalties against Iran and Venezuela begin to take hold after crude futures hit two-week lows earlier this week.

Hopes of a US-China trade deal have lent extra oxygen to crude oil prices in past sessions and this should remain a key driver in the very near term.

USA sanctions on Iran and Venezuela, together with OPEC's output cuts, have therefore removed mostly medium and heavy oils from the market, leaving lighter grades relatively unaffected.


Venezuela has the world's largest proven oil reserves, amounting to around 300 billion barrels, ahead of Saudi Arabia on 265 billion and Canada at 170 billion ("Statistical review of world energy", BP, 2018).

IEA figures show Venezuala's output dropping by roughly 30,000 barrels per day to 1.26 mbd.

Additionally, the International Energy Agency said energy market participants may be able to adjust to US sanctions against Venezuela's crude industry.

Venezuela has tried to find alternative customers, especially in Asia, but under U.S. pressure many buyers there are also shying away from dealing with PDVSA. The EIA, however, added a note of caution that US production would be capping oil price gains.

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.

Despite the political rifts between Venezuela and the United States, US refiners have in the past been some of the biggest buyers of Venezuelan crude.

World oil markets have been on a rollercoaster ride in recent months, with the OPEC+ group agreeing to cut back production again from January in order to reverse a slump in oil prices on abundant production and worries about slower global growth.

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