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OPEC reports big drop in crude production, amid 'somewhat bearish' market outlook

OPEC points to tighter market in 2019 but wary of slowing economic growth

London — OPEC's research and analysis arm 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.

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In its monthly oil market report, OPEC estimates demand for its crude to average 30.30 million b/d in 2019, a fall of 1.05 million b/d on the year, signifying that oil inventories are going to decline sharply, pointing to a very tight market. But it said that the market remains oversupplied and warned of slowing demand growth.

The group's 14 members pumped 30.02 million b/d in March, its lowest output figure since February 2015. This is 100,000 b/d lower than the call on its own crude. Demand for OPEC crude in 2018 averaged 31.35 million b/d.

The March figure is down from 30.56 million b/d in February, largely on a huge fall in production from Venezuela and Saudi Arabia.

Oil prices have recovered sharply since December, when they fell to a 15-month low, and ICE Brent has been trading a five-month high of above $71/b this week.

OPEC revised demand growth down in 2019 to 1.21 million b/d due to "slower-than-expected economic activity."

Global oil demand is estimated to average 99.91 million b/d this year, compared with 98.70 million b/d in 2018, OPEC said. The group pegged 2018 global oil demand growth at 1.41 million b/d.

OPEC also revised down non-OPEC oil supply growth in 2019 by 60,000 b/d "due to extended maintenance in Kazakhstan, Brazil and Canada."

It said that US, Brazil, Russia, UK, Australia, Ghana, Sudan and South Sudan will be the main drivers of supply growth this year.

It forecasts US 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.

STEEP DECLINES Venezuela reported a production figure of 960,000 b/d, down by a massive 472,000 b/d, as power outages and US sanctions cripple the South American oil producer.

Saudi Arabia's crude output fell 289,000 b/d in March to average 9.79 million b/d, according to an average of the six secondary sources that OPEC uses to gauge production.

The kingdom also self-reported production of 9.79 million b/d, its lowest since January 2017 and a fall of 350,000 b/d month on month. That is much below its quota of 10.31 million b/d under the cut agreement.

The kingdom has decreased production by 1.30 million b/d since November when it pumped a record-high of 11.09 million b/d.

At the last OPEC meeting in Vienna, the group's members agreed to slash output by 812,000 b/d, with Russia and nine other non-OPEC allies committing to a cut of 383,000 b/d for the first six months of 2019.

Iraq's production fell marginally to 4.52 million b/d in March, slightly above its quota of 4.51 million b/d, according to OPEC secondary sources.

In Iran, hit by US sanctions, output was slight down, falling 28,000 b/d to 2.70 million b/d in March.

Fellow exempt member Libya pumped 1.098 million b/d in March, up 196,000 b/d from the previous month, but output remains at risk as the country is on the brink of a possible civil war.

A key metric for the deal has been to lower oil inventories below the five-year average. OPEC said it has made some progress toward achieving this goal.

OECD commercial oil inventories fell to 2.63 billion barrels in February and were only 7.5 million barrels above the five-year average, according to OPEC's report. In December, stocks were 28 million barrels above the five-year average, showing that the producer group has made progress in balancing the market.

US total commercial oil stocks fell by 15.6 million barrels to stand at 1.229 billion barrels in March, according to preliminary data.

-- Eklavya Gupte, eklavya.gupte@spglobal.com

-- Edited by James Burgess, newsdesk@spglobal.com