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Vitol Sees Higher Oil Prices As Heavy Crude Supply Shrinks

Commodity trading major Vitol expects crude oil prices to rise further as U.S. sanctions on Venezuela and OPEC production cuts squeeze the global supply of heavy crude, Vitol’s chief executive, Russell Hardy, told Bloomberg in an interview.

"From here there’s probably the potential to be a little bit higher," Hardy said. "Oil supply is going to be pretty tight until the third quarter."

Venezuela, Iran, and the rest of OPEC are the factors that will drive this price rise, the first two not so voluntarily, but the latter consciously cutting mostly production of heavier grades rather than lighter ones. At the same time, demand for heavy crude is set to grow further as refiners gear up for the new International Maritime Organization rules on maritime vessel emissions.

According to Hardy, the squeeze on heavy crude oil supply, however, will only last for the next six months or so, probably because OPEC will end the cuts once their goal is achieved. However, U.S. production of light crude will continue to grow, Hardy noted, and the second half of the year will see new pipeline capacity additions in the Permian, where all the action seems to be these days, boosting availability of light crude to refineries considerably.

"There could be a question mark over market direction by the fourth quarter of this year," Vitol’s CEO said. "There’s a certain amount of pent-up production that’s awaiting logistics to allow it to be exported. As the pipelines come on, some of the drilled but uncompleted wells will start to hit. We should have a surge in production related to the pipelines."

U.S. crude oil production hit an all-time high of 12 million bpd in the week to February 15 and most of this was light crude. This consistent increase will likely give OPEC a headache in the light crude department.

By Irina Slav for Oilprice.com

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