Oil production cuts by Opec+ countries and political crisis in Venezuela is expected to support oil prices in the short term but worries pertaining to global growth and its impact on demand will weigh on prices, according to analysts.
“The Opec+ group of nations’ efforts to cut production and support the price has so far been quite successful. While some uncertainty with regards to Russian efforts has been raised, Opec, led by Saudi Arabia, has led from the front with data from Bloomberg showing a 2.1 million barrels per day drop in production during the past two months,” Ole Hansen, head of commodity strategy at Saxo Bank said in a note.
2.1m bpd Reduction in Saudi oil output in the last two months
He also expects political tension In Venezuela as well as developments in Libya where the country’s biggest oilfield has been closed since December due to ongoing hostilities between eastern military commander Haftar and the UN backed authorities in Tripoli to support oil prices.
“Based on current fundamentals the upside potential looks the greatest but the market is clearly still worried about the potential negative impact on demand should global growth continue to deteriorate.”
Monthly oil market reports from EIA (Energy Information Administration) and Opec on February 12 and the IEA (International Energy Agency) on February 13 will be watched closely for any signs of downgrades to future demand growth, he added.
Organisation of the Petroleum Exporting Countries (Opec) and its allies including Russia are cutting production by 1.2 million barrels per day to rebalance oil markets and support oil prices. The deal which came into effect since the beginning of the year will continue for six months.
On the other hand, developments in Venezuela, South America’s biggest oil producer are also supporting oil prices. The South American country, which is one of the largest oil producers in the world, is going through a political turmoil with opposition leader Juan Guaido declaring himself as the acting president challenging the authority of the elected president Nicolas Maduro.
Global benchmark Brent was trading at $62.10 per barrel, up by 0.76 per cent when markets closed on Friday. US crude West Texas Intermediate was at $52.72 per barrel, up by 0.15 per cent.