Oil rises as Saudis, Venezuela carve deeper into supplies

OIL began the week on the rebound, as Saudi Arabia moved to extend supply curbs and a nationwide blackout threatened deep production cuts in Venezuela.

Futures in New York climbed as much as 1.7pc after dropping 1pc on Friday amid weak employment data in the US. Saudi Arabia plans to produce well below 10 million barrels a day in April, a Saudi official said over the weekend.

Meanwhile, crude output from fellow Organization of Petroleum Exporting Countries (Opec) member Venezuela has collapsed in recent days after a four-day power outage, according to a senior oil ministry official there.

In terms of production, “there’s nothing really bearish about the markets”, said Brynne Kelly, an energy trader and analyst in New York. “We still have Canada holding back; we still have Opec cuts. At the moment, inventories aren’t out of line.”

Oil has traded in a tight range above $55 (€49) this month in New York, after rallying more than 30pc from December lows amid output curbs by Opec and its allies. Disruptions in Venezuela, Libya and Iran have also tightened supplies, although US production is at a record high.

Turmoil in Venezuela, owner of the world’s biggest crude reserves, is leading its production to slide “significantly,” said the head of the International Energy Agency.

State-owned Petroleos de Venezuela and its joint venture partners are struggling to operate wells and other facilities during the power outage that began last week, said a ministry official. They called the production losses severe but didn’t give specific details.

With plans to export less than seven million barrels a day, Saudi Arabia will supply clients with significantly less oil than they’ve requested for April, the Saudi official said.

With Venezuelan output falling due to US sanctions and power blackouts, refiners have asked for more than 7.6 million barrels a day, the person said.

Copper Retains the Commodity Crown

CRU’s Paul Robinson presented at the 28th BMO Metals & Mining Conference in Florida. As hundreds of mining companies and analysts attend the event, sentiment on the day serves as a bellwether for the industry.

Our main takeaway from the conference was the industry is in good health, with the main themes being the positive outlook for copper, a meaningful response from the industry to the Brumadinho tailings dam failure, project development and cost control.

Commodity industry is positioned for growth

CRU presented, alongside Fitch, our view that prices will increase from 4Q 2018 lows. We are forecasting the industry to deliver another year of positive free cashflow in 2019 and the industry is well positioned, financially, should credit markets weaken.

In the meantime, miners have the cash, balance sheets and options to pursue disciplined growth options should they choose to.

M&A, projects, and capex high on the agenda

Unsurprisingly, Barrick’s takeover bid for Newmont featured high on the agenda and both presented at the BMO. Beyond this headline M&A, there were plenty of other positive signs from the mining presentations.

Significant airtime was given to discuss new project partners, updates on development progress and on highlighting options for future growth.

CRU believes development is now necessary to fill medium-term supply gaps in a number of commodity markets. Although CRU expects industry free cashflow to remain positive, these opportunities make balancing competing demands of dividend payments to shareholders, capital expenditure on development projects, and debt reduction more difficult. Future capital allocation decisions will be a real opportunity for miners to demonstrate their “value over volume” approach.

About CRU

CRU offers unrivalled business intelligence on the global metals, mining and fertilizer industries through market analysis, price assessments, consultancy and events.

Since our foundation by Robert Perlman in 1969, we have consistently invested in primary research and robust methodologies, and developed expert teams in key locations worldwide, including in hard-to-reach markets such as China.

CRU employs over 280 experts and has more than 11 offices around the world, in Europe, the Americas, China, Asia and Australia – our office in Beijing opened in 2004 and Singapore in 2018.

When facing critical business decisions, you can rely on our first-hand knowledge to give you a complete view of a commodity market. And you can engage with our experts directly, for the full picture and a personalised response.

CRU – big enough to deliver a high-quality service, small enough to care about all of our customers.

Oil supply concerns mount as OPEC cuts output, US sanctions bite

  • OPEC said on Tuesday production fell by nearly 800,000 barrels per day in January.
  • The expected drawdown comes at the same time that US sanctions restrict supply from Iran and Venezuela. 
  • Leaving refiners with few other options, those conditions could squeeze supply of heavy crude.

As Middle Eastern oil producers follow through with plans to slash production, US energy sanctions have raised concerns about global supply of heavy crude.

Output has been falling in the countries that ship heavy crude to the US, with OPEC posting on Tuesday an expected drawdown in January output. As part of a deal reached last year to coordinate production cuts, the cartel said its output fell by 797,000 barrels a day last month to near its target.

That comes at the same time the Trump administration imposes sanctions against Venezuela’s state-owned oil industry, a major source of heavy crude shipments to the US. The Treasury Department has also issued sanctions on crude exports from Iran, the fourth-largest OPEC producer.

“I think the US Treasury Secretary may be overly optimistic about the ability of other producers to fill the gap,” Helima Croft, head of commodities research at RBC, said in a recent interview.

The sanctions and OPEC cuts have threatened heavy crude supply, which is favored by some US refiners on the Gulf Coast and processed differently than the US shale that has helped send domestic stockpiles to record levels. 

Saudi Arabia is one of the only countries that could surge heavy crude output, according to Croft, but has vowed to move the opposite direction. The unofficial OPEC leader led the cartel’s January drawdown and is expected to continue cutting production.

That country is set to cut output in March to around 9.8 million barrels per day, Energy Minister Khalid al-Falih told the Financial Times on Tuesday, about a half a million fewer than it had originally planned. Additionally, exports would fall to 6.9 million barrels per day.

Analysts and market observers say the outlook for supply remains uncertain. Oil prices have climbed about 20% from lows reached at the end of 2018, with the international benchmark Brent trading just under $63 per barrel.  

“Well, there’s a lot of variables here and there’s a lot of things that could lead to a real crunch,” BP CEO Bob Dudley told CNBC on Tuesday, responding to a question about whether OPEC cuts could stabilize prices.

On the demand side, the cartel lowered its forecast but still expects an increase of 1.24 million barrels per day this year.