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High oil supply disruptions set stage for next slump

April 11/2019

MOSCOW (MRC) -- Global oil output is being hit by expanding US sanctions and other unplanned disruptions which, in an echo of market conditions around five years ago, are pushing prices higher in the short term but also setting the stage for the next slump, as per Hydrocarbonprocessing.

Unplanned factors reduced global production by 2.8 million barrels per day in March, down from 3.3 Mbpd in February, but up from 1.8 Mbpd a year earlier, according to the U.S. Energy Information Administration (EIA).

Disruptions among members of the Organization of the Petroleum Exporting Countries (OPEC) reached 2.49 Mbpd in March, double the same month last year. In recent months, OPEC and total disruptions have been running at the highest levels for almost three years and near some of the highest for a decade (Short-Term Energy Outlook, EIA, April 2019).

And the EIA figures do not include Venezuela, where output has been erratically declining and too variable to define a "normal" undisrupted level. Nor do they take into account the potential impact of renewed fighting in Libya, which could upset production and exports in the next few months if it intensifies.

The figures, therefore, understate the extent to which involuntary production cuts - actual and threatened - have caused the oil market to tighten in recent months.

Sanctions and unplanned problems can help make Saudi Arabias role as swing producer more effective by simplifying coordination with other producers and reducing the risk of cheating.

But unplanned problems can also cause the oil market to over-tighten temporarily, pushing prices higher and masking underlying imbalances between production and consumption, contributing to a subsequent slump.

The recent sudden tightening bears many similarities to events in 2013 and early 2014 - which paved the way for a slump in late 2014 and through 2015.
Author:Anna Larionova
Tags:petroleum products, petrochemistry.
Category:General News
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