Notes to The Tables

• Date: 01 July 2020
• Published date: 01 July 2020
• DOI: http://doi.org/10.1111/oets.12105

First Quarter 2019

January

Brent crude began the year at a low point of $54/bbl but quickly began to rise as OPEC/non-OPEC parties to the Decem-

ber crude supply deal began to implement the agreed cuts, which amount to 1.2 mn bd for the first half of 2019. Key

OPEC swing-producer, Saudi Arabia, emphasised its full commitment to the deal, cutting output to 10.21 mn bd in Jan-

uary –down from 10.6 mn bd in December and below its 10.31 mn bd commitment.

The threat of tougher US sanctions on Venezuela from the end of the month, also cut output, although neither Iran –

which is also subject to US sanctions - nor Venezuela had a quota under the deal. Overall, OPEC achieved an

800,000 bd cut in January, with output averaging 30.8 mn bd, down from 31.6 mn bd in December.

By the end of January, OECD stocks were falling close to 5-year averages, which had been an OPEC objective since

intervention began in 2017. However,the higher recent totals have pushed the five-year average up to 2.85 bn bbl, which

may still be too high for the Saudis.

Refinery margins began the year in buoyant mode, indicating some tightness in the international fuel markets, and help-

ing drive refinery runs and crude prices up during the month.

February

Brent crude stayed in the low-to-mid $60s/bbl throughout February, with support coming from continued target over-

compliance from Saudi Arabia and other GCC members, along with a sharp fall in sanctions-hit Venezuela, while mild

weather in Europe and northeast Asia cut heating demand.

US sanctions on Venezuela introduced in late January saw output fall to below 1 mn bd in February,down from 1.25 mn

bd in December. As wellas the direct impact on cr ude exports, the sanctions are causing problems with the production of

Venezuela’sheavy Orinoco-Belt crude, because it requires the impor t of naphtha and other diluents to enable it to flow.

The cuts in Venezuelan, Saudi and other OPEC output hit heavy sour grades disproportionately, boosting their prices

relative to light sweet benchmarks. For example, in the US Gulf, front month Mars crude, a heavy sour US benchmark,

was assessed at a $6.40/bbl premium to front-month (light sweet) WTI in early February - the widest since January 2014.

Heavy grades also rose sharply in Europe, prompting Saudi Aramco to hike its official formula price for March-loading

cargoes of Arab Heavy to the Mediterranean by $1.15/bbl.

On the demand side, all eyes were on the prospects for global economic growth. February saw some recovery in stock

markets (after the steep falls in Q4 2018) and signs of progress on US/China trade talks. In its February report, OPEC

expected demand to reach 100 mn bd in 2019, up 1.24 mn bd on 2018 - which is down on earlier forecasts.

March

Oil prices stayed well supported during March, helped by falling Venezuelan exports and even tighter adherence to

OPEC/non-OPEC’sDecember deal. Signs of slower-than-expected US output growth were also supportive, but worries

over the global economy and slower-than-expected demand growth limited price rises.

OPEC (primarily Saudi Arabia) kept a tight rein on production all month –keeping prices close toor above $65/bbl

for front month Brent, which ended the month just below $70/bbl. Saudi Arabia cut output to 9.8 mn bd, which was

over 500,000 bd below its commitment - boosting market sentiment, and overallOPEC production fell 550,000 bd

to just over 30 mn bd, the lowest level since February 2015, according to OPEC. This helped global supply drop

340,000 bd in March, which meant OPEC finally broke through its target of cutting inventories below their five-

year averag e.

Led by the Saudis, OPEC and its allies decided on March 18 to maintain their 1.2 mn bd oil production cuts until the end

of June, when another meeting is set to take a decision on whether to extend the cuts into the second half of the year.

US crude production rose by 100,000 bd in early March, back to its all-time high of 12.1 mn bd. Libya also saw an

increase after the government restarted output at the country’s Sharara Field, following a three-month shut down due

to unrest in the area. Overall production rose to 1.2 mn bd in March, despite increased fighting as General Haftar main-

tained his attack on the capital of Tripoli. However,the unrest has led to the shelving of expansion plans and is likely to

erode production over coming months, unless either side can impose order and security.

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