Energy Sector Update for 03/15/2019: BHGE, XOM, CVX, RDS.A, RDS.B, BP, E, COP, TOT, PBR, PBR.A, EC, SLB, HAL, NOV, SPN

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(Updates with the price move, EIA/IEA/Goldman Sachs reports from the first paragraphs.)

Crude touched its highest level in four months this week after the International Energy Agency warned of a looming supply deficit and a counter-seasonal drop in oil inventories surprised the energy market.

Prices were firmer this week after the US Energy Information Administration (EIA) said in its weekly report on Wednesday stockpiles slumped by 3.9 million barrels, surprising market participants who expected a build of 2.67 million barrels. US oil production also dropped by 100,000 barrels per day to 12.0 million barrels a day, putting a spring in the step of commodity bulls, the IEA data showed.

In its monthly oil-marke t report , the Organization of the Petroleum Exporting Countries (OPEC) reported a fall of 221,000 barrels per day in February output to 30.549 million barrels, bringing the compliance rate to the cuts in the cartel's total supply to 94%. However, some cuts such as those from Venezuela, a member of OPEC, have been involuntary.

Serious disruption of oil industry operations in Venezuela could pose a challenge to the global oil industry if losses were to continue on a significant scale, the International Energy Agency ( IEA ) warned on Friday, although it pointed out that a supply cushion from other producers such as Saudi Arabia could cushion potential losses.

Until recently, Venezuela's oil production had stabilized at around 1.2 million barrels per day (mb/d), the Paris-based IEA stated. During the past week, however, it said industry operations there had been seriously disrupted and advised that ongoing losses on a "significant scale could present a challenge to the market".

The production outages recorded in Venezuela, as well as Iran, which is currently under US sanctions, will push the market into a supply deficit in the second quarter, the agency added in its report.

This comes as US Secretary of State Mike Pompeo has asked India to halt all crude imports from Venezuela, with an aim to weakening President Nicolas Maduro regime that the US does not recognize. As a result, India's largest private oil refiner Reliance Industries has capped its crude imports from Venezuela, putting more upward pressure on crude prices.

While oil production disruptions remain volatile, the political stalemate in Venezuela increasingly creates risks that the decline in output due to the US oil sanctions more than offsets the rebound in Libya, which would bring global output below "our expectations and further tighten heavy crude supplies," The Goldman Sachs Group ( GS ) said Thursday in a research report.

"Oil prices are buoyed by Saudi's comments on continued large [supply] curtailments for April as well as accelerating declines in Venezuela output due to the political stalemate and the growing reluctance of Indian refiners to take more imports," Goldman analysts led by Damien Courvalin wrote in the report.

Meanwhile, the number of oil rigs operating in the US fell by 1 to 833, the lowest level since April 27, 2018, according to data from energy services firm Baker Hughes ( BHGE ), which tracked the seven-day period ending March 15. The count has fallen by 20 in the past three weeks. The combined oil and gas rig count in the US also slipped by 1 to 1,026 as gas rigs were flat 193.

In Canada, the number of oil rigs in operation slumped by 20 to 98 over the same period, while the number of gas rigs was down by 8 at 63 over a week to March 15. In the previous week, the Canadian oil rig count had fallen by 22. As a result, the North American total plunged by 29 - after slumping by 33 in the previous week - to 1,187 in the week to March 15 versus 1,209 a year ago, the data showed.

"The latest Brent rally has brought prices to our peak forecast of $67.5 per barrel, three months early," Goldman's Courvalin wrote in the report. "Our bullish forecast was fundamentally based, on the combination of resilient demand growth and large supply curtailments, and we now see scope for prices to rally further to above $70 per barrel in the near term."

Intraday Friday, the West Texas Intermediate traded 0.3% lower at $58.44 per barrel, near its highest level in the past four months.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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This article appears in: Investing , Energy
Referenced Symbols: IEA , GS , BHGE , XOM , CVX

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