OPEC Offsets Iran Oil Loss, Sees Lower 2019 Demand

19 December, 2018, 01:58 | Author: Darnell Patrick
  • Brent crude rises to $61 on Libyan supply cut, US inventories

OPEC's output agreement with Russian Federation and Canada's decision to mandate production cuts could create an oil market supply deficit by the second quarter of next year, if top producers stick to the deal, the International Energy Agency said in its monthly Oil Market Report.

Prices rose almost one-percent earlier in the session, but the big wave of buying that could've triggered a breakout to the upside failed to materialize.

The baseline for the cut is October's production as reported in OPEC's December Monthly Oil Market report, except for Kuwait, which according to delegates will cut from September production.

A drop in US crude stockpiles, though less than expected, has helped boost sentiment, analysts said.

Daily U.S. production now tops 11.5 million barrels and the U.S. Energy Information Administration (EIA) expects domestic production to average 10.9 million barrels a day this year, rising to a 12.1 million average in 2019. This follows a 7.3 million barrel decline in the previous week. The Wall Street Journal survey had shown expectations for supply increases of 1.8 million barrels in gasoline and 1.3 million barrels in distillate inventories.

The United States, where weekly crude production has hit a record, is set to end 2018 as the world's top oil producer, ahead of Russian Federation and Saudi Arabia.


Iranian output posted the biggest decline, of 380,000 bpd. "We envisage a Brent price of $70 per barrel at the end of 2019, and indeed at the end of 2020", said commodities analysts at Commerzbank, in a note. Distillate inventories were up the same week by 712,000 barrels, compared to an expected build of 1.801 million barrels.

Oil remains sideways as energy traders await a decline in United States or OPEC production.

However, despite Tuesday's momentary respite from the price free fall that has characterized crude trading in recent weeks, Tamas Varga, analyst at PVM Oil Associates, warned that "The dollar is a bit weaker, but other than that, I don't see any reason why this market should rally right now; it fell quite hard yesterday, so it might correct higher".

In a sign that China wants to lower trade tensions with the United States, the country made its first major USA soybean purchases in more than six months on Wednesday.

"The more OPEC+ tries to support prices by withholding oil from the market, the more they give the US shale sector an out from rationing supply growth themselves", Citi said in a research note written by a team led by Ed Morse, the firm's global head of commodities.

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