Oil rises after Saudi output pledge, declining US inventories

Venezuela's President Nicolas Maduro attends a military exercise in Charallave

Oil prices rose on Wednesday as producer club Organisation of the Petroleum Exporting Countries (OPEC) said it had cut supply deeply in January and as USA sanctions hit Venezuela's oil exports.

The Organisation of Petroleum Exporting Countries (Opec) said it tightened its crude taps to cut nearly 800,000 barrels a day from its oil exports in January after vowing to drain excess oil from the oversupplied market.

OPEC, Russia and other non-OPEC producers, an alliance known as OPEC+, agreed in December to reduce supply by 1.2 million bpd from January 1 to prevent excess supply building up.

This rate could rise in coming months as top exporter and OPEC kingpin Saudi Arabia voluntarily lowers supply by more than it agreed. OPEC supply cuts, coupled with USA sanctions on Iran and Venezuela, have eased concerns of a glut.

According to the agreement clinched in December, Saudi Arabia alone has reportedly reduced production of crude by almost 400,000 barrels per day to 10.24 million barrels.

Compliance by non-OPEC participants was only 25 percent, however, it said.

Overall, global supply fell by 1.4 mbd to 99.7 mbd in January, according to the IEA, which said cuts imposed by authorities in the province of Alberta in Canada, which is not party to the Vienna Agreement, also contributed to the reduction.

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Those fears dissipated after Washington eventually granted waivers allowing several countries to continue to import Iranian oil.

"Crude-oil quality is another issue, and, in the wider context of supply in the early part of 2019, it is even more important".

The IEA further added that traders shouldn't expect US sanctions against Venezuela to fuel a rally in oil prices.

Venezuela's crude production slumped from 3.8 million barrels per day in 1970 to just 1.7 million bpd in 1985, recovering to 3.4 million bpd in 1998 before slumping again to 2.1 million bpd in 2017.

Responding to the market concerns about potential oil demand as producers try to reverse massive dips in price at the end of 2018, Falih assured that the oil market is on the right track and will soon return to its balance.

Refineries are built to handle a certain quality of crude, and those which process so-called heavy crude from Venezuela, Canada or the Middle East can not be easily converted to treat the light shale oil that is now being produced in greater quantities in the United States. "Saudi Arabia, are intending to push more barrels into the market to offset shortfalls" of heavier grades of crude, the IEA warned.

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