Crude oil prices are rising, albeit poorly, on Friday amid production constraints by the Organization of Petroleum Exporting Countries (OPEC) and sanctions against Venezuela and Iran. All this is likely to create a slight global supply deficit in the first quarter of 2019. The price growth, however, is limited because of fears that the slowdown in the world economy will soon also affect fuel demand.
The futures on US crude oil WTI with delivery in April appreciated by 0.26% to 58.76 USD per barrel, while the futures on Brent variety with delivery in May rose by 0.19% to 67.36 USD per barrel.
Since the beginning of the year, the prices of crude oil have risen by about 25%.
OPEC, along with some non-cartel countries, including Russia, made a commitment to cut supplies by 1.2 million barrels per day from the beginning of the year to tighten markets and support prices.
The OPEC+ group will have a meeting during the weekend in Baku, Azerbaijan, during which production policy will be reviewed. The expectations are that supply restrictions will continue.
Meanwhile, US sanctions against Venezuela and Iran further tighten the oil markets.
So far, demand for oil has remained steady. The crude oil consumption in China, the largest importer in the world, grew by 6.1% in the first two months of 2019 to a record 12.68 million barrels per day.
India’s oil minister noted during a meeting with his Saudi counterpart that prices were already climbing higher than India, one of the world’s largest importer, was comfortable with.
According to the US investment bank Goldman Sachs, the current fundamentals will tighten even more physical markets, supporting Brent variety to reach a price of over 70 USD per barrel. The analysts believe that the reason for this is that demand growth outpaces weak consensus expectations.
The US crude oil inventories and production
U.S. crude oil inventories decreased in the week ending March 8, the US Energy Information Administration (EIA). Crude inventories, that exclude the nation’s Strategic Petroleum Reserve, decreased by 3.9 million barrels from the previous week to 449.1 million barrels, which is about 2% above the five-year average for this time of year.
Inventory reports have seen big swings in recent weeks. During the week prior to last, the government reported a huge inventory build of 7.1 million barrels, causing oil prices to dip.
According to the EIA, total motor gasoline inventories decreased by 4.6 million barrels last week, while finished gasoline and blending components inventories both decreased last week. The distillate fuel inventories increased by 0.4 million barrels, the propane/propylene inventories decreased by 1.2 million barrels and the total commercial petroleum inventories in the country decreased by 10.2 million barrels.
Recently, the International Energy Agency, its annual five-year oil outlook report, said the next wave of shale revolution is coming for the US. The nation is on track to be a net exporter by 2021, the agency said. Refineries operated at 87.6% of their capacity last week, and both gasoline and distillate fuel production decreased.
The US crude oil refinery inputs averaged 16.0 million barrels per day during the week ending March 8, 2019. The gasoline production decreased last week, averaging 9.7 million barrels per day, while the distillate fuel production decreased last week, averaging 4.9 million barrels per day.
During the last week, the US crude oil imports averaged 6.7 million barrels per day.
The US has not been producing as much oil as many analysts expected. While the country remains the biggest oil producer, recent data shows that the activity is slowing down.