OPEC could raise oil output if prices increase, shortages mount

Daniel Fowler
April 14, 2019

Oil prices rose one per cent on Friday as involuntary supply cuts from Venezuela and Iran plus conflict in Libya supported perceptions of a tightening crude market, while upbeat Chinese economic data eased concerns about waning crude demand.

Venezuelan production dropped due to USA sanctions, which added to an already deep economic and political crisis in the country, while Iranian production is also expected to drop further as a result of the U.S. sanctions which are to be tightened in May.

Global oil demand is estimated to average 99.91 million bpd this year, compared with 98.70 million bpd in 2018, OPEC said.

The group forecasts USA crude production to rise by 1.46 million bpd in 2019 to 12.42 million bpd. Crude oil outlook remains neutral, however, due to upcoming seasonality effects that typically boosts oil prices in addition to uncertainty surrounding further OPEC supply cuts.

Apart from growing speculation over OPEC's next move on crude supply, Thursday's (April 11th) data had revealed an upsurge in the United States crude stockpiles, which had also contributed potentially to the decline of U.S. crude future price.

The March figure is down from 30.56 million bpd in February, largely on a huge fall in production from Venezuela and Saudi Arabia.

The rig count fell for the past four months as independent exploration and production companies cut spending on new drilling to focus on earnings growth instead of increased output.

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The report pointed to a slightly under-supplied market in 2019 if OPEC kept pumping at March's level. Saudi Arabia is set on maintaining the production cuts into the second half of 2019, while Russian Federation refuses to commit to an extension.

"Geopolitically infused rallies could shoot prices toward or even past the $80 per barrel mark for intermittent periods this summer", RBC Capital Markets said in a note.

A fourth OPEC source said there were talks about ideas such as whether OPEC should continue with the cuts alone, a deal extension of only three months to keep Russian Federation on board or pumping more if prices rise further.

"This turnaround in supply has contributed to a dramatic increase in prices, with Brent crude rising from $50 a barrel at the end of December, to more than $70 a barrel today".

In March, OPEC crude oil production tumbled by 550,000 b/d with losses in Venezuela, together with lower output from Saudi Arabia and Iraq.

USA energy companies this week increased the number of oil rigs operating for a second week in a row, bringing the total count to 833, General Electric Co's Baker Hughes energy services firm said in its closely followed report on Friday. "The companies are struggling to curb production".

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