Opec output cuts near victory

Global oil markets are tightening quickly on falling supply from Venezuela, which posted 2017's biggest unplanned output fall and could see a further decline in 2018, the International Energy Agency (IEA) said on Friday.

Debt and infrastructure problems cut Venezuela's December output to 1.61 million barrels per day (bpd), somewhere near a 30-year low. That helped oil prices top $70 per barrel in early January, their highest level in three years.

"The general perception that the market has been tightening is clearly the overriding factor and, within this overall picture, there is mounting concern about Venezuela's production," the IEA, which coordinates energy policy in industrialised nations, said in its monthly report.

"Given Venezuela's astonishing debt and deteriorating oil network, it is possible that declines this year will be even steeper... US financial sanctions are also making it tougher for Venezuela's oil sector to operate," the IEA said.

As a result of lower Venezuelan production, the IEA said Opec's crude output in December fell to 32.23 million bpd, boosting the group's compliance with a deal to curb output to 129 per cent.

December also saw production problems in the North Sea, which helped cut global December oil supply to 97.7 million bpd, down 405,000 bpd from November.

Opec agreed to lower production in 2017 and has agreed to maintain output cuts for the whole of 2018 to help bring oil stocks in OECD industrialised countries down to their five-year average.

The IEA said that if Opec and its non-Opec allies maintained good compliance with the output deal, oil markets would balance in 2018.

It said stocks in industrialised countries posted an average fall of 600,000 bpd in the last three quarters of 2017, the largest since 1984 when it began collecting data, helped by record global refinery runs in the fourth quarter.

"Global crude oil markets saw an exceptionally tight 4Q17," the IEA said, adding that it saw a combined fall of one million bpd during that period on declining stocks in industrialised nations and a fall in Chinese balances.

The recovery in oil prices and a decline in global oil stocks has been helped by robust global demand growth in 2017 but it will slow down in 2018, the IEA said.

It kept its oil demand growth estimate for 2018 unchanged at 1.3 million bpd, down from 1.6 million bpd in 2017, mainly due to the impact of higher oil prices and changing patterns of oil use in China.

Besides slowing demand, a spectacular rise in US output is expected to keep oil prices under pressure, the IEA said. 

US to overtake Saudi as crude producer 

The US is set to overtake Saudi Arabia as the world's number two oil producer after Russia this year, as shale companies, attracted by rising prices, ramp up drilling, the International Energy Agency said.

"This year promises to be a record-setting one for the US," the IEA said.

Crude production of 9.9 million barrels per day in the US was now at the highest level in nearly 50 years, "putting it neck-and-neck with Saudi Arabia, the world's second largest crude producer after Russia," the IEA said.

"Relentless growth should see the US hit historic highs above 10 million bpd, overtaking Saudi Arabia and rivalling Russia during the course of 2018."