Global supply fell 1.4 million b/d to 99.7 million b/d in January, according to data from the International Energy Agency’s latest Oil Market Report.
The decline reflected factors including sanctions against Iran, a supply fall in the Organization of Petroleum Exporting Countries of 930,000 b/d in January, US sanctions against Venezuela’s state oil company Petroleos de Venezuela (PDVSA), and Alberta supply cuts.
These production cuts, however, all directly impact the supply of heavy, sour oil. Therefore, crude oil quality becomes another important issue in the wider context of supply in the early part of 2019, IEA said.
Less exports from PDVSA
In 2018, about 450,000 b/d of Venezuelan crude oil was shipped to the US. This is only a fraction of the 1.7 million b/d exported in 1998 when President Hugo Chavez was on the verge of power. Much of the oil is used in PDVSA’s US refining system, run by its subsidiary Citgo Petroleum Corp.
IEA said, “The collapse in exports mirrors the collapse of production over the same period from 3.4 million b/d to about 1.3 million b/d today. In addition, Venezuela took a political decision to ship oil to China; initially to diversify export markets as Canada’s shipments to the US soared, but more recently as repayment for tens of billions of dollars of loans. Shipments to India too, have grown, reaching 360,000 b/d in 2017, but last year they fell by 11%.”
Meanwhile, PDVSA’s oil is typically of the heaviest quality and requires the addition of sufficient quantities of imported diluents or domestic blending. “With the import of diluents now sanctioned by the US, and problems in producing its own lighter crudes, PDVSA will have a tough job to make enough on spec barrels available for export. This is before it gets to the issue of who will buy them,” IEA said.
However, with less exports from PDVSA, headline benchmark crude oil prices have hardly changed on news of the sanctions. This is because, in terms of crude oil quantity, markets may be able to adjust after initial logistical dislocations. Stocks in most markets are currently ample and, with the implementation of the new Vienna Agreement at the start of the year, there is more spare production capacity available, IEA explained.
The price of Mars—a medium, sour crude oil produced in the US Gulf of Mexico—has increased compared with light, sweet crude oil.
The premium of Light Louisiana Sweet crude over Mars crude has fallen to below $1/bbl from more than $4/bbl in November. Since the US sanctions against Venezuela were announced, the premium of Mars over WTI has soared from $4.50/bbl to over $7.50/bbl.
Fundamentals
IEA’s global demand estimate for 2018 is unchanged at 1.3 million b/d. Growth in demand in 2019 is expected to be 1.4 million b/d, unchanged from last OMR. The growth is supported by lower prices and the start-up of petrochemical projects in China and the US. Slowing economic growth will, however, limit any upside potential.
Global supply fell 1.4 million b/d to 99.7 million b/d in January as the Vienna Agreement and Alberta’s cuts took effect. Non-OPEC growth estimates have increased to 2.7 million b/d in 2018 and to 1.8 million b/d in 2019. This is mainly due to higher US output.
OPEC crude output was 930,000 b/d lower in January at 30.83 million b/d, a near four-year low. Compliance with the Vienna Agreement was 86%, with Saudi Arabia, UAE and Kuwait cutting by more than promised. Compliance by non-OPEC participants was only 25%.
In December, global refining throughput fell 700,000 b/d year-over-year instead of an expected increase due to lower activity in Asia’s four largest refiners: China, India, Japan, and South Korea. IEA’s 2019 forecast is unchanged, with runs expected to grow by 1.2 million b/d.
At yearend 2018, OECD oil company stocks were 5.6 million bbl below the November level at 2 858 million bbl, up 4.6 million bbl compared with yearend 2017. The major stock build in the second half of 2018 was in non-OECD countries. Government stocks drew in 2018 by 22.1 million bbl, mainly in the US and Europe.
Brent futures reached a 2-month high of $62.75/bbl in early February, with WTI prices about $10/bbl below. The Brent-Dubai EFS narrowed to an 8-year low as sour crude markets tightened. Ample supplies of gasoline saw cracks decline into negative territory.
