The International Energy Agency (IEA) said in a report this week that they have left their demand growth forecast for 2019 unchanged from January’s report of 1.4 million barrels per day, citing “lower prices and the start-up of petrochemical projects in China and the U.S. Slowing economic growth will, however, limit any upside.” The IEA said the global oil market will struggle to absorb fast-growing crude supply despite OPEC production cuts and American sanctions on Venezuela and Iran.
The sanctions have ended supply of crude that tends to yield larger volumes of higher-value distillates, as opposed to gasoline. Despite some disruption for refiners this did not result in a dramatic increase in the price of oil. “In terms of crude oil quantity, markets may be able to adjust after initial logistical dislocations [from Venezuela sanctions]”, the Paris-based IEA said, “Stocks in most markets are currently ample and … there is more spare production capacity available.”
In the last two years, Venezuela’s production has nearly halved to 1.17 million bpd due to a government-induced economic crisis that along with every other industry decimated energy, and U.S. sanctions have now crippled its exports as long as President Maduro refuses to hand over the government to interim President Guaido.
The agency also lowered its forecast for demand for OPEC crude, of which the cartel claims to have cut production by 800,000 bpd this year as part of an agreement with Russia and other non-OPEC producers including Oman and Kazakhstan. The “call” on OPEC crude is now forecast at 30.7 million bpd in 2019, down from the IEA’s last estimate of 31.6 million bpd in January.
Brent crude futures rose 20 percent in 2019 to approximately USD $63 a barrel based on early January, however, the price has largely plateaued since then. “Oil prices have not increased alarmingly because the market is still working off the surpluses built up in the second half of 2018,” the IEA said. “In quantity terms, in 2019, the U.S. alone will grow its crude oil production by more than Venezuela’s current output. In quality terms, it is more complicated. Quality matters.”