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Oil prices hit a two-week high on Tuesday morning, due to serious service disruptions in Venezuela and ongoing OPEC + production cuts.
A devastating power blackout swept Venezuela at the end of last week, crippling the daily life of much of the country. PDVSA's oil exports have been severely disrupted and, while data are scarce, production may have fallen by half to about 500,000 bpd, according to Energy Aspects. "The activities were interrupted in the main facilities, which reduced the production of the main synthetic grades and the mix of Merey to almost zero," said Energy Aspects in a note.
"There is a vicious circle," Folh Birol, director of the International Energy Agency, told Bloomberg on the sidelines of the IHS CERAWeek conference in Houston. "Since oil is not exported, there is no income because you can not invest in infrastructure."
The big question is how long the failure will last. The US State Department has announced the withdrawal of staff from its embassy in Caracas. This could reduce the risk of conflict, as any incursion of US personnel could serve as a pretext for escalation or even military intervention. However, the withdrawal goes both ways. Removing American diplomats could move them away from danger and allow them to take bolder action. Alarmingly, the US Secretary of State justified the withdrawal by saying that keeping these people in Venezuela had become a "constraint" on US policy.
Breakdowns have global implications. Oil prices jumped earlier in the week, with WTI above $ 57 a barrel and Brent above $ 67 a barrel.
Oil prices rise as Saudis slow exports
Meanwhile, OPEC + cuts remain in effect and Saudi Arabia has suggested keeping production well below the required levels. As part of the December Vienna agreement, Saudi Arabia is committed to limiting production to 10.3 million barrels per day (mb / d). However, starting in March, the Saudi authorities announced that they would only produce 9.8 mb / d. More recently, Saudi Arabia has indicated that it will maintain the level of 9.8 Mb / d until April, a sign that even if oil prices rise, Riyadh would rather do too much than not enough.
Saudi Oil Minister Khalid al-Falih also said that OPEC production cuts could remain in effect beyond June.
Together, Venezuela and Saudi Arabia have given the market a boost. "Oil prices rise for the second day in a row … They continue to suffer from the announcement yesterday by Saudi Arabia of a significant restriction of the oil supply in April" Commerzbank wrote in a note on Tuesday. "This shows Saudi Arabia's determination to maintain the balance of the oil market by maintaining a limited supply. The news revealed that the massive power outage in Venezuela for five days is also hampering the country's oil exports. "
In addition, oil production in the United States actually declined slightly in December, indicating that the staggering growth rate could "take a break after six months of unprecedented highs," Barclays writes in a report. The United States averaged 11.85 Mb / d in December, down about 60,000 bpd from November levels. The decline was a surprise after several consecutive months of rapid growth.
It is too early to draw conclusions. One month of data indicates no trend, but the collapse of oil prices in November and December may have slowed the trajectory of the American shale deposit. Cutbacks in spending and investor pressure are forcing many companies to reduce their ambitions.
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Of course, most forecasts call for yet another year of massive growth in production. EIA sees production increase by 1.4 Mb / d. But other analysts have said that spending cuts could lead to lower production than estimated. "Basically, I think the supply estimates for the US are going to disappoint," Dell told Dell, Managing Partner at Kimmeridge.
"We expect production growth to remain relatively weak in the first half of the 19th but accelerate in the second half of the year," said Barclays.
In short, several factors play in the optimistic direction, especially compared to the more pessimistic forecasts of a few months ago. Demand remained stable, defying the dire predictions of an impending collapse due to the worsening economy. OPEC + cuts, combined with unexpected outages, are tightening the market. And even if there is a lot of uncertainty, the American shale could potentially slow down.
While inventories have not yet declined as a result of OPEC + reductions, the market appears to be tightening. Next step: Waivers of US sanctions against Iran expire in just over two months, providing another landmine for global supply.
By Nick Cunningham from Oilprice.com
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