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Venezuela could tip oil market into deficit — IEA

Friday, March 16, 2018

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PARIS, France (AFP) — A dramatic decline in oil production in crisis-hit Venezuela could tip the global crude market into deficit, the International Energy Agency said Thursday, helping wipe away a glut that has depressed prices for years.

Oil is the lifeblood of OPEC member Venezuela's economy, but a major wave of political unrest that shows no sign of abating has slashed output.

“With supply from Venezuela clearly vulnerable to an accelerated decline, without any compensatory change from other producers it is possible that the Latin American country could be the final element that tips the market decisively into deficit,” the IEA said in a report.

Global oil prices have swung wildly in recent years as producers struggled to meet demand only to flood the market with supplies as they tried to squeeze rivals out of business.

After collapsing to under US$30 a barrel at the beginning of 2016, prices have gradually risen to above US$60 as the OPEC cartel and Russia have restrained production to try to eliminate the glut in output.

Booming US production, primarily thanks to low-cost shale output, has helped cushion markets.

But the crisis in Venezuela's government-led economy has decimated its oil sector.

The state's cash-strapped PDVSA oil company has been unable to properly manage its fields to maximise production, with output falling to half of what it was a decade ago.

The IEA forecast that the company could see output fall this year to the lowest level since the late 1940s.

GOOD NEWS FOR COMPETITORS

Making matters worse for Venezuela, the United States — the Latin American country's biggest oil customer — has threatened to impose an embargo on its crude exports.

But for other oil exporters around the world, including fellow members of OPEC, the crisis in Venezuela's oil sector might be good news as they could produce more without leading to a drop in prices.

Overall, the global oil “market re-balancing is clearly moving ahead with key indicators ... pointing in that direction” said the IEA, noting a closer alignment of supply and demand and stocks in industrialised nations falling close to average levels.

The agency made minor adjustments its annual forecasts, under which rising US output is expected to helping meet increased demand while OPEC and its partners restrain production.

It raised its forecast for growth in demand for oil this year to 1.5 million barrels per day (mbd), an increase of 0.1 mbd from its previous forecast, to a total of 99.3 mbd.

Meanwhile, the IEA left untouched its forecast of total non-OPEC supply rising by 1.8 mbd this year to 59.9 mbd.

It raised its forecast for the market's call on OPEC supplies and stocks by 0.1 mbd to 32.4 mbd, which still represents a modest decline from last year.

The IEA also mentioned the possibility of a trade war as a threat to the cheery economic outlook where global growth and rising trade drive rising demand for oil.

TRADE WAR RISK

Fears of a trade war have spiked since US President Donald Trump announced trade tariffs on steel and aluminium imports, in line with his “America first” policy.

“Recent signs of protectionism from the US are a risk to the forecast, raising the possibility of a global trade war,” the IEA said.

It noted that global trade growth accelerated from 2.5 per cent in 2016 to 4.7 per cent last year, which was likely behind an increase in demand for certain fuels.

While the International Monetary Fund forecasts global trade to continue to expand at a strong 4.6 per cent this year, the IEA warned “a slowdown would have strong consequences, particularly for fuel used in the maritime sector and in the trucking industry”.

Trump's protectionist move comes as the White House is also considering slapping tariffs on billions of dollars in Chinese imports.

The US also announced Wednesday it was taking action at the World Trade Organization against Indian export subsidies.

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