• 4 minutes Is The Three Gorges Dam on the Brink of Collapse?
  • 8 minutes The Coal Industry May Never Recover From The Pandemic
  • 11 minutes China Raids Bank and Investor Accounts
  • 9 hours Biden admits he has been tested for Cognitive Decline several times. Didn't show any proof of test results.
  • 2 hours Putin Forever: Russians Given Money As Vote That Could Extend Putin's Rule Draws To A Close
  • 1 hour During March, April, May the states with the highest infections/deaths were NY, NJ, Ma. . . . . Today (June) the three have the best numbers. How ? Herd immunity ?
  • 12 hours Apology Accepted!
  • 4 hours Tesla Model 3 police cars pay for themselves faster than expected, says police chief
  • 15 hours U.S. natural gas at major disadvantage in Europe and China.
  • 16 hours Biden came out of his basement today (Thursday) and said , "we have 120 Million deaths from Covid 19.
  • 3 hours Why Oil could hit $100
  • 3 hours The Political Genius of Donald Trump
  • 16 hours Putin Paid Militants to Kill US Troops
  • 21 hours CoVid in Spain, 9 months before China
  • 20 hours Per most popular Indian websites it was Indian troops not Chinese troops breach of LAC that caused the clashes. If you know any Indian media that claim to the contrary please provide the link
  • 21 hours The world is headed for big problems - interview with very smart economist

Breaking News:

OPEC Production Falls To Three Decade Low

The Country That Won The Oil War

The Country That Won The Oil War

While Saudi Arabia and Russia…

Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

More Info

Premium Content

Why This Oil Price Rally Has A Limit

The crisis in Venezuela threatens to disrupt the global oil market, but OPEC has a much stronger base of spare capacity that offers a “supply cushion,” according to a new report from the International Energy Agency (IEA).

“Although there are signs that the situation is improving, the degradation of the power system is such that we cannot be sure if the fixes are durable. Until recently, Venezuela’s oil production had stabilised at around 1.2 mb/d,” the IEA said in its March Oil Market Report. Independent analysts have estimated that Venezuela’s oil exports may have temporarily plunged as low as 500,000 bpd after ports and other oil operations went offline due to the blackout. The electricity losses have been mitigated somewhat in recent days, and a key oil export terminal recommenced operations, but the threat to supply is significant.

Nevertheless, for the global oil market, the disruption does not present an apocalyptic scenario because OPEC has plenty of oil sitting on the sidelines to handle any lengthy outages from Venezuela’s 1.2 mb/d of production.

“As it happens, 1.2 mb/d is also the size of the output cuts agreed by OPEC countries and some non-OPEC producers,” the IEA wrote. “Due to the cuts, OPEC members are sitting on about 2.8 mb/d of
effective spare production capacity (Iran and Venezuela are excluded from the calculation), with
Saudi Arabia holding two-thirds of it.”

By backing out 1.2 mb/d of production, OPEC has tightened up the market. But it also rebuilt spare capacity. So, while the oil market is tightening, and a deficit is looming, the spigot can be turned back on. It’s the exact opposite scenario of last summer, when OPEC was producing flat out, helping to add barrels onto the market, but burning through spare capacity.

Moreover, as the IEA notes, the quality of production that is being held on the sidelines by Saudi Arabia and its Gulf allies is similar to that of the heavy oil in Venezuela. “Therefore, in the event of a major loss of supply from Venezuela, the potential means of avoiding serious disruption to the oil market is theoretically at hand,” the IEA said.

Even so, the market has been tightening. Demand has been “solid” at a time when OPEC has been keeping barrels off of the market. The IEA sees a surplus in the first half of 2019, but a deficit of about 0.5 mb/d in the second half.

Related: U.S. Aims To Bring Iran Oil Exports Below 1 Million Bpd

The IEA said that rising U.S. oil exports also offers another layer of global supply security. “This year US seaborne oil trade will move into surplus with net exports rising to nearly 4 mb/d of by 2024. The rising profile of the US not only brings greater choice to consumers, but, crucially, it enhances security of supply, especially when, as now, there are heightened geopolitical concerns,” the IEA wrote.

The sanguine tone is rather notable, given that oil prices have jumped to their highest levels in four months.

After last year’s experience, it would seem likely that OPEC would be hesitant to abandon the production cuts too early. In June 2018, that’s exactly what they did, expecting a deficit to overwhelm the market. After ramping up supply, the market crashed at the end of the year, though much of the blame can be pinned on the Trump administration for over-hyping supply losses from Iran.

This time, Saudi Arabia will likely be more willing to let the market overtighten rather than return supply to the market too soon. “The OPEC Secretariat called upon oil producers yesterday to prevent another oversupply this year at all costs,” Commerzbank wrote in a note to clients on Friday. “This sounds like an appeal to extend the production cuts – which will expire mid-year – until the end of the year.

Demand

(Click to enlarge)

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News