Opec cuts, US sanctions will continue to impact crude supply in Q2

Oil prices, which gained 30 per cent on average in the first quarter of 2019, are expected to continue the rally in the second quarter and likely to trade mostly around $70 a barrel, according to industry analysts.

The first-quarter gain was the biggest quarterly rise in a decade, driven by the US sanctions on Iran and Venezuela as well as cuts by Opec and non-Opec members that were implemented in early January this year.

On Friday, the Brent rose 48 cents to settle at $67.59 a barrel while US West Texas Intermediate (WTI) futures rose 84 cents, or 1.42 per cent, to $60.14.

The oil price in the second quarter is expected to trade between $64 per barrel to $70 a barrel compared to $60 to $65 per barrel range forecast for the first quarter. Industry executives and analysts have put $67.4 a barrel median range for second quarter and as high as $80.

Oman’s Energy Minister Mohammed bin Hamad Al Rumhy on Saturday emphasised that the Sultante will remain committed to Opec agreement until the end of 2019. He predicted crude prices to trade in the range of $65 and $75 a barrel until the end of 2019.

With oil rig count falling and production remaining stagnate last week in the US while the Opec and non-Opec countries also reluctant to make up for the lost volume, the oil prices will rally further in the coming months. The other factors which will influence the oil price upward will be the US sanctions on Iran and Washington’s consistent pressure on traders to reduce their exposure to Venezuela.

“Oil price trend continued to remain upward during March 2019, showing consistent gains since the start of the year and closing little short of the $70 a barrel mark. However, prices are yet to see the peaks seen during October 2018,” said Faisal Hasan, head of investment research at Kamco. 

World oil demand is projected to rise from 99.02 million barrels per day in Q1 2019 to 99.21 million barrels per day in Q2 2019, keeping the oil prices steadily on the upward trend during second-quarter 2019.

Opec and Russia had cut oil production by 1.2 million barrels per day from January 2019 for an initial six months period, which was one of the main drivers for the surge in prices. Opec members agreed to cut 0.8 million while Russia had 0.4 million bpd cut.

Oil producers are planning to hold an ordinary meeting again in Vienna on June 25 and an extraordinary meeting on April 17-18. Reports said Saudi Arabia was trying to convince Russia to stay much longer in the pact of lower oil production, and Moscow may agree only to a three-month extension.

“Saudi Arabia, if necessary, will further reduce its production to balance oil supply and demand. Opec’s next meeting will be held by April 2019 and if Opec members and Russia agree on reduction oil production it can be expected that oil prices will increase,” said Omid Shokri Kalehsar, a Washington-based senior energy security analyst and visiting research scholar in the Schar, School of Policy and Government at George Mason University.

Kalehsar noted that the US is expected to extend waivers from Iran’s sanctions to several countries to prevent a sharp rise in oil prices. “If there is no major political tension in the oil producing region, a balance can be seen between and supply and demand by Q2 and there will be no major change in oil prices,” he said.

Meanwhile, reports said that the US has instructed oil trading houses and refiners to further cut dealings with Venezuela or face sanctions themselves, even if the trades are not prohibited by published US sanctions.

“With US sanctions taking Iranian and Venezuelan oil off the market, at the same time Opec and non-Opec producers want to see higher prices and are currently reluctant to make up for any lost volume,” said Andrew Lipow, president of Lipow Oil Associates in Houston.

In addition, the US energy firms last week reduced the number of oil rigs operating to their lowest in nearly a year, cutting the most rigs in a quarter in three years.

According to Baker Hughes, the total number of active oil drilling rigs fell by 8 to 816. Canada’s total oil and gas rig count fell by 17 and is now 88, which is 46 fewer rigs than this time last year.

Waheed Abbas/DubaiFiled on March 30, 2019 ,
https://www.khaleejtimes.com

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