Crude-oil prices have been rising sharply in international markets as OPEC is committed to rebalancing the crude oil market. The latest update shows that OPEC’s crude-oil production in March further declined to 30.02 million barrels a day, from 30.56 million b/d the previous month.
A steep decline in production from Saudi Arabia, Venezuela and Iraq led to rise. Saudi Arabia has signaled that it is determined to do whatever it takes to rebalance the market. The country has cut production by more than it agreed to under the pact.
Venezuela’s crude-oil production continues to fall due to US sanctions and a string of blackouts. The IEA says that Venezuela’s crude-oil output has fallen to 870,000 b/d. The US may impose additional sanctions in the future. The Trump administration has been pressurising India and China to cut off oil purchases from both Iran and Venezuela. Hence, the situation in Venezuela is becoming cumbersome.
Media reports say that Iran’s crude-oil exports in April have fallen to the lowest level in 2019. The US had exempted till May 2 a few countries from importing Iran’s crude oil. Now, the US will have to decide whether to extend such waivers or not.
Renewed militant activity in Libya is a matter of concern for the market. Escalation of the tension might have an impact on crude-oil production. The situation is much worse than it was in 2011 during the civil war. The IEA says that OPEC’s compliance jumped from 94% in February to 153% in March.
The market expects that OPEC will extend its production-cut deal till this year-end. OPEC’s bi-annual meeting is scheduled for June 25-26, at which it may decide to extend the deal or not. Since January, OPEC and its allies have been cutting production (by 1.2 million b/d) for six months to rebalance the market.
The EIA has raised its Brent crude-oil forecast to USD 65 a barrel in 2019, up from its earlier projected USD 63 due to the tighter global oil market. Overall, the outlook for crude oil is bullish.
(The author is Research Analyst-Currency and Commodity at Anand Rathi Shares and Stock Brokers)
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