• Oil markets are looking for deeper production cuts, as US inventories are higher since November 2017



    *Osama Suleiman from Vienna


    Oil prices continued to rise yesterday after Saudi Arabia, the world's largest oil exporter, said that it will cut crude exports and cut production further, while US futures increased due to a drop in domestic oil inventories.

    According to "Reuters", Brent crude futures rose 88 cents to $ 63.30 a barrel, while US crude futures rose 66 cents to $ 53.76 a barrel.


     Stephen Brinock, BP Oil Associates, said, "The good sentiment returns, but those who are bullish on the dollar have not yet fully overcome the crisis. It is well known that the global economy is losing momentum under various risks such as US-China trade and geopolitical uncertainties."


    Most of the reduction is due to Saudi Arabia, as Eng. Khalid Al-Falih, Minister of Energy, Industry and Mineral Resources, told the Financial Times on Tuesday that the production will drop from ten million barrels per day in March, which is less than half a million barrels per day from the target agreed to the Kingdom under the global supply reduction agreement.


    Goldman Sachs said, "Production cuts exceed expectations by some major producers and a decline in seasonal crude inventories due to increased demand will push oil prices higher."

    The Brent crude was expected to rise to $ 67.50 a barrel in the second quarter of 2019.

    Goldman Sachs said in a research note dated Feb. 12, "Production losses starting in 2019 are already greater than expected. Producers adopt a strategy of shock and terror and go beyond reduction commitments."

    The investment bank added, "the US sanctions, which began to apply last month on Venezuelan oil exports, disrupt the supply of crude."

    It noted that the improvement of the fundamentals of oil is already reflected in the decline in stocks above seasonal patterns.

    However, Goldman warned of price forecasts for the second half of 2019, as producers with low production costs increased.


    The US Energy Information Administration said stocks of crude oil, gasoline and distillates in the United States rose last week.

    Oil inventories rose 3.6 million barrels last week, which is the highest level since November 2017, compared to analysts' expectations of a 2.7-million-barrel rise.

    The Department reported that crude stocks at Cushing's delivery center in Oklahoma fell 1.016 million barrels.

    It added that the consumption of refineries of crude oil fell 865 thousand barrels per day, while the refinery operating rate fell 4.8 percentage points.

    Gasoline inventories rose 408,000 barrels, against analysts' expectations in a Reuters poll of 826,000 barrels.


    Data showed that distillate stocks, which include diesel and heating oil, unexpectedly rose 1.2 million barrels, against expectations of a decline of 1.1 million barrels.

    US crude oil imports last week fell 430,000 bpd to 3.8 million bpd, the lowest level recorded.


    For his part, Bank of America Merrill Lynch said, "The Organization of Petroleum Exporting Countries (OPEC) has achieved good success in restoring a lot of stability in the oil markets and effectiveness in stopping the deterioration of prices, and continues to face greater challenges, especially in the medium term."

    A recent report by the Bank of America confirmed that the prospects for medium-term production growth are still unclear due to continuing sanctions on Iran and Venezuela, the geopolitical risks in general and increased supply competitiveness from outside OPEC.

    Crude prices remain relatively low and demand fears are growing in light of existing trade disputes.

    It pointed out that the production of the United States has increased significantly over the past half a decade and is expected to continue to rise during the current year.

    It pointed out that the increase in production from the oil fields of the United States called for the OPEC countries to reduce production to avoid falling prices because of the obscurity of supply of crude oil.

    The international report suggested that the role of OPEC in controlling the pace of the market in the coming years, especially with regard to reducing supply availability in the markets.

    It pointed out that the producers' alliance will greatly help to reduce the supply in the coming years and enhance the state of sustainable balance between supply and demand.


    According to the report, OPEC members have added about 7 million bpd to production capacity between 2013 and 2018.

    The projects came in a variety of producing countries, led by the Gulf States, Iraq, Iran and West African countries.

    The report pointed out that Iraq in particular added huge amounts of new supplies that recovered after years of war.

    Iraq's oil output has more than doubled since 2010 and currently exceeds 4.7 million bpd.

    It predicted that over the next six years, new additions to the production capacity of the OECD countries would probably be smaller than previously.

    It will probably be concentrated in fewer OPEC countries, and may not exceed 4 million bpd.


    To this, David Disma, an analyst at South-court Energy Consultants, told the Economist, "OPEC plays a special role in supporting the stability and balance of the market."

    He added, "Although it has enormous reserves and large production capacity, it adheres to the production constraints to support this balance and prevent the collapse of prices, which is not only in the interest of the producing countries, but the interest of the global economy more comprehensively."

    He pointed that 75 per cent of the world's oil reserves are in the OPEC countries, led by Saudi Arabia and Venezuela.

    But OPEC has a good reading of the market by taking into account the rapidly growing US production and the possibility of economic slowdown and then shrinking levels of oil demand.


    For his part, Reinhold Gutierrez, Director of Oil and Gas at Siemens, explained to the Economist that sustained productivity cuts are largely supportive of price recovery, which is reducing the supply-demand gap and absorbing the impact of rapidly expanding US supplies.


    Reinhold Gutierrez added, "the US sanctions on Venezuela is one of the most important challenges of the current phase because of the wide impact on the supply in the market, especially of heavy oil."

     He pointed out that the reconstruction of the oil sector in Venezuela will take many years and an enormous cost to repair the current acute deterioration.


    For his part, Andrei Yanayev, a Bulgarian energy analyst, said to the Economist, "The OPEC countries enjoy huge comparative advantages, most notably the cheap price of a barrel, which is the cheapest in the world, while the cost of production of a barrel outside the OPEC in some areas of the United States and the North Sea about $ 40 a barrel."

    Yanayev noted that some producers are facing other major difficulties such as lack of investments and geopolitical risks and economic sanctions that affected Venezuela and Iran, and its impact is expected to extend for years to come, which is weakening the oil sector in both countries.​

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