Saudi’s commitment to deeper oil production cuts and supply disruptions in Venezuela due to US’ sanctions on the South American country’s state-owned oil company have combined to further lift oil prices, which had rallied by 1 percent on Wednesday.
On Thursday, US West Texas Intermediate (WTI) crude futures were at $55.21 per barrel at 1616 GMT, up 0.98 cents or 1.81 percent from their last settlement. International Brent crude oil futures were up 62 cents or 1.01 percent at $62.16 per barrel.
Saudi Arabia will pump oil for six months at levels “well below” the voluntary production limit it accepted under OPEC’s oil-cuts accord, Khalid Al-Falih the Middle Eastern Kingdom’s energy minister said.
The world’s biggest exporter targeted January production of 10.2 million barrels a day and is aiming to pump 10.1 million in February, Al-Falih said in a Bloomberg Television interview. Saudi Arabia’s voluntary limit under the December cuts deal with Russia and other allied producers were 10.33 million barrels a day.
“Demand will start picking up at the end of the first quarter and into the second quarter,” Al-Falih said. The impact of the reduction “will trickle down into the global markets over the next few weeks.”
US sanctions imposed on state-oil firm Petroleos de Venezuela SA (PDVSA) this week is also causing some supply disruptions.
Venezuela’s oil inventories have started to build up at the country’s ports and terminals as PDVSA is finding it cannot export crude at its usual rate due to US sanctions imposed earlier this week.
As of Wednesday, Venezuela had 25 tankers with nearly 18 million barrels of crude – representing about two weeks of the country’s production – either waiting to load or expecting authorisation to set sail, shipping data showed.
Matt Stanley, a broker with Starfuels in Dubai, said the combination of US sanctions against oil producers Venezuela and Iran, the OPEC-led supply cuts as well as hopes that the trade dispute between the United States and China could soon be resolved meant oil prices would likely rise further.
To compound Venezuela’s woes, PetroChina Co plans to drop Petroleos de Venezuela SA (PDVSA) as a partner in a planned $10 billion oil refinery and petrochemical project in southern China, three sources familiar with the matter said this week.
The company’s decision adds to state-owned PDVSA’s struggles after the US imposed sanctions on the company on Jan. 28 to undermine the rule of Venezuelan President Nicolas Maduro.
However, dropping the company was not a reaction to the U.S. sanctions but follows the deteriorating financial status of PDVSA over the past few years, said two of the sources, both executives with China National Petroleum Corp, the parent of PetroChina.
Moreover, Venezuela’s heavy crude must be blended with diluent in order for it to be an exportable product. To date, PDVSA has been importing diluent from the US That will no longer be allowed, so it is unclear how Venezuela will manage this disruption. “If Venezuela fails to find a substitute, oil production will have to be scaled back,” Commerzbank wrote in a note.
Despite this, oil remains in ample supply not least because of soaring US crude oil production, which jumped by more than 2 million bpd last year to a record 11.9 million bpd.
This shows the high US commercial crude oil stockpiles, which rose by 919,000 barrels in the week to January 25, to 445.94 million barrels, EIA data showed. Stockpiles are 6.6 percent higher than a year ago.
