Published: Sun, March 17, 2019
Economy | By

Oil Rises Strongly Supported by Cuts, Sanctions

Oil Rises Strongly Supported by Cuts, Sanctions

The report highlights that even though OPEC and its leader, Saudi Arabia, got some results by keeping oil prices at a certain level via production cuts, this also stimulated shale oil production in the USA and led to the US becoming the biggest crude oil producer.

Experts point out that the OPEC cuts, with a goal of not supplying the market with 1.2 million barrels of oil a day during the first six months of the current year, constitute the key factor in the upward trend that has characterized the hydrocarbon price in recent weeks. The report said rising production outside the group pressed the need for continued restraint by OPEC+. The coalition embraces 24 nations, including OPEC members as well as other producers such as Russian Federation and Kazakhstan.

With a nationwide blackout that paralysed the country for one week, demonstrating the unreliability of the country's electricity network, new questions are being raised about Venezuela's ability to continue to produce and export oil.

The Organization of the Petroleum Exporting Countries and some non-aligned producers including Russian Federation have been withholding oil supply since the start of the year to tighten global markets.

OPEC sources have said an extension of the pact is the likely scenario.

OPEC+ ministers will meet on April 17-18 to decide production policy.

The 2019 pact was a U-turn after the producers had agreed to boost supplies in mid-2018.

Despite the new curbs, market indicators followed by OPEC will prolong concerns about excess supply.

The figures revealed that, only in February, OPEC lowered crude extraction by 221,000 barrels per day compared to January, to 30,549 million barrels per day.

Production cutbacks by OPEC nations are building a supply cushion that could be called upon to mitigate a possible supply shock from an abrupt drop in crisis-hit Venezuela's output, the IEA said Friday. The newspaper article also states that US energy gains will have a price for the environment and that has described the situation as a "climate disaster".

The IEA, on the other hand, foresees that OPEC countries will reduce their production to 380,000 barrels per day by 2024 such that the global oil prices will not decline.

A falling United States dollar could help the situation as well, and as the Saudi cuts continue to grip the market, I think overall we have a constructive outlook for crude oil as not only do all those things coming together, but we also have Chinese stimulus that will push demand on the mainland as well.

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