Crude oil prices rose on Friday after the report by the Organization of Petroleum Exporting Countries (OPEC) showed that production fell sharply last month, reducing the fears of long oversupply. Moreover, the news that Washington considers removing some or all of the duties imposed on Chinese imports has supported the capital and oil markets.
The futures on US crude oil WTI rose by 3% to 53.76 USD per barrel. The price of Brent oil increased by 2.75% to 62.84 USD per barrel.
The agreement between OPEC and other non-cartel producers, including Russia, to restrict supplies came into force on January 1, and their efforts are aimed at preventing oversupply in 2019.
In addition, it is clear from OPEC’s monthly report that oil production has fallen by 751,000 barrels per day to 31.58 million barrels per day, which is the largest monthly decline of nearly two years.
OPEC also cut its forecast for the average daily demand for oil for 2019 to 30.83 million barrels, down by 0.910 million barrels per day from the 2018 average.
However, OPEC’s efforts to curb oversupply have been undermined by a record US production where output has grown by 2 million barrels per day in the past year to 11.9 million barrels per day.
IEA: Balancing the oil market will take time
The International Energy Agency (IEA) has warned that attempts to balance the world oil market may take time, “as Saudi Arabia’s efforts to reduce oil production were not followed by Russia”.
The agency maintains the forecast that growth in demand for crude oil will reach 1.4 million barrels per day this year, compared to 1.3 million barrels per day in 2018. In 2019, the demand is set at 100.7 million barrels per day. Decreased prices are likely to support the demand. According to the IEA this year, the average price of one barrel of Brent crude oil will be 61 USD compared to 71 USD in 2018, representing a decrease of 14%.
The IEA highlights that Iranian exports rose slightly in December amid less severe US sanctions than expected, while the Venezuelan oil industry collapse slowed in the second quarter.
US oil production will also be a determining factor in 2019.
The US may catch up with Russia and Saudi Arabia on oil production in mid-2019, according to the IEA.
Meanwhile, the processing capacity will increase by 2.6 million barrels per day, the biggest growth for four decades, while margins are already pressured by low gasoline cracks due to oversupply and weak demand. The well-trailed changes to the International Maritime Organisation’s marine fuel regulations due in 2020 are another big issue for some refiners as they seek to find outlets for unwanted high sulfur fuel oil. By the end of the year, all industry players, upstream and downstream, may feel as if they have run a marathon.
US oil inventories
The US crude oil inventories fell 2.7 million barrels, more than double forecasts. The fuel stockpiles last week rose more than forecast and for the fourth straight week, the Energy Information Administration said, outweighing a bigger-than-expected crude drawdown.
The gasoline stockpiles rose 7.5 million barrels. At 255.6 million barrels, gasoline stocks at the highest weekly level since February of 2017.
The distillate stockpiles, which include diesel and heating oil, increased 3 million barrels, versus expectations for a 1.6 million-barrel rise, the data showed.