Goldman expects oil prices to rise on 'shock and awe' output cuts

Jeannie Matthews
February 14, 2019

Additionally, gains are being limited by weakening global demand.

The American Petroleum Institute (API) on Tuesday said that us crude inventories fell by 998,000 barrels in the week to February 8 to 447.2 million, compared with analyst expectations for an increase of 2.7 million barrels. In an interview with the Financial Times, Saudi Arabia's Energy Minister Khalid al-Falih said that the Saudis would cut production to around 9.8 million bpd in March, some 500,000 bpd below the commitment in the OPEC+ deal that began in January.

"In quantity terms, in 2019 the USA alone will grow its crude oil production by more than Venezuela's current output", the IEA said.

In its monthly report released yesterday, OPEC said its crude output fell 797,000 barrels per day (bpd) in January compared with the prior month.

The U.S. administration likely calculated any fallout from sanctions on oil prices would be small given the limited volumes of crude involved and the expectation that the standoff would be resolved quickly.

Bank of America also warned of a "significant slowing" in global growth, adding that it expects Brent and WTI to average 70 US dollars and 59 USA dollars a barrel respectively in 2019 and 65 US dollars and 60 US dollars in 2020.

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"In quantity terms, in 2019, the USA alone will grow its crude oil production by more than Venezuela's current output".

Additionally, the International Energy Agency said energy market participants may be able to adjust to USA sanctions against Venezuela's crude industry.

With the actual loss of Venezuelan and some Middle Eastern crude, and the potential loss of Iranian barrels, the dilemma for Asian refiners becomes more acute.

"In terms of crude oil quantity, markets may be able to adjust after initial logistical dislocations (from Venezuela sanctions)", the Paris-based IEA said. With the prospect of an ever-increasingly energy independent US coming closer to fruition, current energy products will have to cut output in order to keep prices at a suitably high level.

Gasoline inventories for the same period rose 746,000 barrels.

Venezuela sanctions have arrived in a market that was already likely to be short of medium and heavy crudes because of USA sanctions on Iran and OPEC's output cuts. "US producers are also so far guiding towards restrained shale production growth". -China trade deal. That may be in the works, but it could take several months to feel its influence.

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