OPEC cuts & USA sanctions against Iran and Venezuela boosting global crude prices

The Opec+ cuts are taking effect and US data is starting to reflect these changing market conditions. — Reuters  file

The OPEC, which Saudi Arabia de-facto leads as the world's top crude oil exporter, said on Tuesday that it had cut its output by nearly 800,000 bpd in January to 30.81 million bpd.

Previous pacts by OPEC and its partners including Russian Federation, often called OPEC+, to cut back production have been marked by initial low compliance rates by certain countries.

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Wednesday, supported by deeper-than-expected OPEC-led production cuts and the impact of U.S. -led sanctions on Venezuela oil exports.

Meanwhile, Barclays bank added, "Oil production is rapidly falling and companies that normally resell Venezuelan crude have not found ways to mitigate the effect of the USA sanctions".

"Oil production is rapidly falling and companies that normally resell Venezuelan crude have not found ways to mitigate the effect of the U.S. sanctions", Barclays bank said.

Despite the political rifts between Venezuela and the United States, US refiners have in the past been some of the biggest buyers of Venezuelan crude.

Output has gone into free fall as the country's isolation has increased, shrinking from 2.4 million bpd in 2016 to 2.0 million bpd in 2017 and 1.5 million bpd in 2018, according to the Joint Organisations Data Initiative.

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Oil descended into a bear market in November, a swift drop from four-year highs seen in October, as traders grew anxious over strengthening USA production and an outlook for softer global fuel demand.

But climbing US oil stockpiles weighed on prices.

Oil prices rose on Thursday, buoyed by hopes that potential progress in the latest Sino-U.S. tariff talks would improve the global economic outlook, and as China's trade figures including crude imports beat forecasts.

Heavy crudes are much harder to refine and tend to contain significant quantities of sulfur and other impurities that are costly to remove, which is why they sell at a hefty discount to medium and light oils.

It would be recalled that OPEC and 10 non-OPEC countries agreed in December to cut oil production by 1.2 million bpd effective from January for an initial period of six months to shore up what many expected to be weakening market fundamentals ahead. Additionally, gains are being limited by weakening global demand.

John Kemp is a Reuters market analyst.

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