Oil rallies as U.S. gasoline inventory draw offsets crude build

Oil rallies as U.S. gasoline inventory draw offsets crude build

Oil markets have tightened this year because of USA sanctions on oil exporters Iran and Venezuela, as well as supply cuts by OPEC and some non-affiliated producers including Russian Federation, a group known as OPEC+.

OPEC's oil output dropped sharply last month as a result of steep production cuts in Venezuela and kingpin Saudi Arabia, the cartel said on Wednesday.

Oil prices fell on Thursday, pressured as United States crude stockpiles surged to their highest levels in nearly 17 months amid record production and as economic concerns cast doubt over growth in demand for fuel.

The research and analysis arm of the Organisation of Petroleum Exporting Countries pointed towards a much tighter market in 2019 as the group has seen its production fall significantly this year, led by curbs to Saudi Arabian output along with dramatic, involuntary declines from sanctions-hit Venezuela.

US West Texas Intermediate (WTI) crude oil futures were at $64.28 per barrel, down 33 cents, or 0.5%, from their previous settlement.

But these developments are unlikely to hold any sway over the market as long Saudi Arabia continues to back the production cut deal as aggressively as it has done so far.

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"Venezuelan oil output is estimated to have fallen from 1.19 million bpd in October to 890,000 bpd in March, while output from Iran has fallen from 3.33 million bpd to 2.71 million bpd due to sanctions".

"Even though the crude oil inventory rise was almost equal in size, the focus of the complex, as we head into peak summer driving season, is gasoline", said John Kilduff, a partner at Again Capital LLC in NY.

"Oil bulls are drawing heart from the strong employment data in the USA", said Sukrit Vijayakar, Director of Energy Consultancy, Trifecta.

Russia, not an OPEC-member but a reluctant participant in the supply cuts, signalled yesterday it wanted to raise output when it meets with OPEC in June because of falling stockpiles. Yet the gains have been capped by fears about global economic growth, which the International Monetary Fund predicts will this year be the weakest since the financial crisis a decade ago. The forecast cut 0.2 percentage point from the IMF's outlook in January.

The U.S., Brazil, Russia, UK, Australia, Ghana, Sudan and South Sudan, will be the main drivers of supply growth this year, with U.S. crude production to rise by 1.46 million b/d in 2019 to 12.42 million b/d."The highest incremental production is expected in the Gulf Coast, albeit at a slower pace compared to a year ago due to the pipeline constraints in Permian Basin", it added.