International Energy (IEA) released its monthly crude oil market report on Thursday (April 11). The report shows that global oil markets are tightening as oil supplies in the Organization of Petroleum Exporting Countries (OPEC) countries decline, but warns that oil demand may be reduced because economic growth is threatened.
As Saudi Arabia and its partners cut production and Venezuela and Iran’s exports were squeezed by economic and political crises, global oil supply fell by 340,000 barrels a day in March and crude oil stocks are expected to fall for the rest of the year, according to the monthly report. But it warned that the threat of a global economic downturn from Europe to emerging markets could have a negative impact on fuel demand.
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“As we enter the second quarter of 2019, there are signs of tightening in the oil market, but we see mixed signals about demand prospects,” said the IEA, which provides energy advice to most major economies. Demand risk is “in the downward trend at present”.
Brent’s crude oil price has risen by more than 30% this year and is trading at more than $71 a barrel as Saudi Arabia leads OPEC and its allies in production cuts. However, the International Monetary Fund (IMF) predicts that this year will be the weakest year for global economic growth since the financial crisis a decade ago, and concerns about global economic growth have limited the rise in oil prices.
In its monthly report, the IEA said Venezuela’s oil production fell to a long-standing low of 870,000 barrels a day as a result of U.S. sanctions and power outages. “The collapse of the economy, corruption and poor management, together with the recent sanctions imposed by the United States, have severely damaged Venezuela’s oil industry, and the blackout has worsened the situation.” Production fell by 270,000 barrels a day from the previous month, creating the second largest decline in the country’s history, a decrease of 600,000 barrels a day from the same period last year.
Venezuela’s exports fell sharply as Saudi Arabia’s output cut more than expected. OPEC output fell sharply again last month, falling by 550,000 barrels a day to 30.1 million barrels a day in March, and global oil supply declined. The IEA said supply growth outside OPEC would also slow sharply as Canada cut production and North Sea production suffered a decline.
Owing to OPEC’s production restrictions, inventories in developed countries were below their five-year average, falling for the first time in four months in February. Nevertheless, the IEA warned that the demand outlook was shadowing.
Demand risk
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The IEA said global crude oil demand growth in 2019 was expected to remain unchanged at 1.4 million barrels per day, supported by robust growth in demand in China and India, but it raised some potential risks.
Consumption in developed countries fell for the first time in the fourth quarter since 2014. In addition, the IEA said it was concerned about the ongoing trade dispute between China and the United States, that demand recovery in the Middle East remained “moderate” and that the economic situation of European countries could deteriorate, and that the situation would be even worse if Britain left the EU in disorder.
The downside may also come from rising oil prices, which are now at $70 a barrel, which are more uncomfortable for consumers than they were at the beginning of the year.
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