The logo of the Venezuelan state oil company PDVSA is seen at a gas station in Caracas, Venezuela. Picture: REUTERS/MARCO BELLO
The logo of the Venezuelan state oil company PDVSA is seen at a gas station in Caracas, Venezuela. Picture: REUTERS/MARCO BELLO

Singapore — Oil prices rose on Wednesday as producer club Opec said it had cut supply deeply in January and as US sanctions hit Venezuela’s oil exports.

US West Texas Intermediate (WTI) crude oil futures were at $53.70 a barrel at 3.44am GMT, up 60c, or 1.1%, from their last close.

International Brent crude futures were up 1.1%, or 69c, at $63.11 a barrel.

Jeffrey Halley, senior market analyst at futures brokerage Oanda in Singapore, said oil prices were boosted after “Saudi Arabia announced it was cutting daily production and exports by a further 500,000 barrels a day on top of its agreed Opec quota cut”.

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 almost 800,000 barrels a day in January to 30.81 million barrels a day.

Supply issues in Opec-member Venezuela are also bolstering oil prices as the South American country suffers a political and economic crisis, with Washington introducing petroleum export sanctions against state-owned energy firm PDVSA.

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

These customers have fallen away after Washington imposed sanctions earlier this year.

“With so far no sign of change in government, we see increasing risks that production losses could be larger and sooner than our forecast for a 0.33 million barrels a day supply loss in 2019,” US bank Goldman Sachs said in a note on Wednesday.

Venezuela has tried to find alternative customers, especially in Asia, but under US pressure many buyers there are also shying away from dealing with PDVSA.

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

Weakening demand

Despite the Opec cuts and crisis in Venezuela, analysts said global oil markets remain well supplied.

“Oil markets continue to focus at the macro level on the dual notions of adequate supply and softening demand,” Frank Verrastro, senior vice-president for the Energy and National Security Program at the Center for Strategic and International Studies (CSIS), a US think-tank, said in a note.

He added that markets were amply supplied due to “adequate global oil inventories, the prospect of weakened demand tied both to US-China trade and broader economic concerns, the approach of seasonal refinery maintenance — when crude oil demand declines — and an influx of new supply from the US and elsewhere".

Most new supply is coming from the US, where crude production rose by more than 2-million barrels a day in 2018 to a record 11.9-million barrels a day, making the country the world’s biggest oil producer ahead of Russia and Saudi Arabia.

And while Opec and its allies, including Russia, withhold supply, US output is expected to rise further, with the Energy Information Administration saying on Tuesday that US crude production is expected to reach 13.2-million barrels a day by 2020.

Reuters