Soaring U.S. Crude Oil Production Highlights OPEC's Quandary

Oil prices rose on Wednesday as producer club Organisation of the Petroleum Exporting Countries (OPEC) said it had cut supply deeply in January and as U.S. sanctions hit Venezuela's oil exports.

The Organization of the Petroleum Exporting Countries (OPEC) said on Tuesday that it had cut its output by nearly 800,000 bpd in January to 30.81 million bpd.

US West Texas Intermediate (WTI) crude oil futures were at $53.66 per barrel, up 56 cents, or 1.1 percent, from their last close.

Venezuela sanctions have arrived in a market that was already likely to be short of medium and heavy crudes because of US sanctions on Iran and OPEC's output cuts.

Oil prices gained almost 2% on Tuesday, supported by OPEC-led production cuts which Saudi Arabia said it would surpass by over half a million barrels per day (bpd) and by United States sanctions against Iran and Venezuela.

The major oil exporters in the Middle East Gulf (Saudi Arabia, Iraq, United Arab Emirates, Kuwait and Iran) market mostly medium and heavy crudes.

The IEA noted that new U.S. sanctions announced in January on Venezuela's state oil company PDVSA have not so far caused market jitters.

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While remaining volatile, oil prices have rallied to just above $60 a barrel and jumped more than a dollar after the Opec production update.

In the report, OPEC cut its forecast for 2019 world economic growth by 0.2 percentage point to 3.3 percent and highlighted a range of headwinds, including a slowdown in global trade.

Output has gone into free fall as the country's isolation has increased, shrinking from 2.4 million bpd in 2016 to 2.0 million bpd in 2017 and 1.5 million bpd in 2018, according to the Joint Organisations Data Initiative.

Prices of the American reference for the sweet light crude oil are prolonging the recovery on Wednesday, trading at shouting distance from the $54.00 mark per barrel ahead of the EIA report.

The U.S. Treasury's guidance, which appears deliberately unclear, has left many third-country buyers uncertain about whether they can do business with PDVSA without also falling foul of sanctions.

Soaring output is putting the US on course to become a net exporter of crude oil and petroleum products next year. The price has largely plateaued since then, in spite of the subsequent imposition of US sanctions.

The IEA kept forecasts for global oil demand unchanged, despite signs of slowing economic growth, as consumption remains supported by lower crude prices and the startup of petrochemical projects in China and the U.S.