Goldman expects oil prices to rise on 'shock and awe' output cuts

Opec oil production falls as Saudi Arabia slashes output

Asia's oil refiners are increasingly finding themselves trapped between the rock of OPEC's production cuts and the hard place of U.S. President Donald Trump's sanctions against Iran and Venezuela.

"In terms of crude-oil quantity, markets may be able to adjust after initial logistical dislocations", said the Paris-based IEA, which advises major economies on energy policy.

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Wednesday, supported by deeper-than-expected OPEC-led production cuts and the impact of U.S. -led sanctions on Venezuela oil exports.

In its monthly report, Opec said it produced 797,000 fewer barrels per day in January than in the previous month, a decrease in line with the cartel's pledge to curb output in a bid to boost sagging prices.

"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-bpd supply loss in 2019", USA bank Goldman Sachs said in a note on Wednesday.

"Oil prices have not increased alarmingly because the market is still working off the surpluses built up in the second half of 2018", the IEA said.

USA sanctions on Venezuela's state-owned oil company are tightening the global oil market and sending refiners around the world scrambling to find replacements for the country's diesel-rich heavy and extra heavy crudes. The dense crudes are much more hard to refine and tend to contain significant quantities of sulfur and other impurities that are costly to remove.

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OPEC cut output by nearly 800,000 bpd in January to 30.81m bpd. OPEC and other countries will either have to continue curbing extraction to maintain prices in the future or accept an energy independent US and the likely oversupply of energy that would bring to the market.

Forecasts for non-OPEC supply were lifted by an improved outlook for the Gulf of Mexico, while projections for global demand were lowered as a result of weakness in Europe and the Americas.

Compliance by non-OPEC participants was only 25 percent, however, it said.

OPEC is partnering with 10 non-member nations, including Russian Federation, to keep 1.2 million bpd off the market.

Saudi Arabia plans to reduce its oil exports to 6.9 million barrels per day (bpd) in March, down from 8.2 million bpd a year ago, the country's energy minister, Khalid Al-Falih, announced yesterday.

Any economic slowdown could cap oil markets.

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