World can rely on OPEC supply cushion for urgent oil needs: IEA

Paris-based International Energy Agency said that Venezuela’s oil industry operations were seriously disrupted by the blackout. (File/AFP)
Updated 15 March 2019
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World can rely on OPEC supply cushion for urgent oil needs: IEA

  • International Energy Agency warned of “ongoing losses on a significant scale could present a challenge to the market,” referring to crisis-hit Venezuela
  • But OPEC members have about 2.8 mbd of spare production capacity, with much of it being similar in quality to oil produced in Venezuela

PARIS: Production cutbacks by OPEC nations are building a supply cushion that could be called upon to mitigate a possible supply shock from an abrupt drop in crisis-hit Venezuela’s output, the IEA said Friday.
With a nationwide blackout that paralyzed the country for one week, demonstrating the unreliability of the country’s electricity network, new questions are being raised about Venezuela’s ability to continue to produce and export oil.
In its latest monthly report, the Paris-based International Energy Agency said that Venezuela’s oil industry operations were seriously disrupted by the blackout and warned that “ongoing losses on a significant scale could present a challenge to the market.”
Venezuela’s oil output has long been on a downward spiral thanks to years of underinvestment and mismanagement, with stepped-up US sanctions further trimming exports.
However the IEA also noted that Venezuela’s current oil production of about 1.2 million barrels per day (mbd) is the size of production cuts agreed by members of the OPEC oil cartel and a number of other nations led by Russia, a grouping often called OPEC+.
Overall, it said OPEC members have about 2.8 mbd of spare production capacity, with much of it being similar in quality to oil produced in Venezuela, which means it could be used without much, if any, adjustment by refineries.
“Therefore, in the event of a major loss of supply from Venezuela, the potential means of avoiding serious disruption to the oil market is theoretically at hand,” said the IEA, adding that “production cuts have increased the spare capacity cushion.”
The agency, which advises oil-consuming nations on energy issues, said that thanks to bigger-than-promised cuts by Saudi Arabia and its Gulf allies, the OPEC+ effort to trim output was beginning to work.
Since 2016 the OPEC+ nations have agreed on a series of output limits in an effort to counteract the collapse of oil prices in 2014 caused by overproduction. After oil prices had a rollercoaster ride at the end of last year, OPEC+ agreed to cut production by 1.2 mbd in January to June.
The IEA said OPEC+ production was 0.24 mbd above the target of 44.3 mbd, with overall compliance with reduction targets at 80 percent.
“OPEC’s compliance was a robust 94 percent, compared to 51 percent from non-OPEC,” said the IEA, adding that major producer Russia was continuing to adjust its production gradually.
“If the producers deliver on their promises, the market could return to balance in the second quarter” of this year, said the IEA.
The IEA left unchanged its forecast for non-OPEC supply increasing to 64.4 mbd this year from a revised 62.7 mbd in 2018, a gain of 1.7 mbd.
It left unchanged its forecast for global oil demand growth of 1.4 mbd to an average of 100.6 mbd in 2019.


Italy endorses China’s Belt and Road plan in first for a G7 nation

Updated 24 March 2019
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Italy endorses China’s Belt and Road plan in first for a G7 nation

ROME: Italy endorsed China’s ambitious “Belt and Road” infrastructure plan on Saturday, becoming the first major Western power to back the initiative to help revive the struggling Italian economy.
Saturday’s signing ceremony was the highlight of a three-day trip to Italy by Chinese President Xi Jinping, with the two nations boosting their ties at a time when the United States is locked in a trade war with China.
The rapprochement has angered Washington and alarmed some European Union allies, who fear it could see Beijing gain access to sensitive technologies and critical transport hubs.
Deputy Prime Minister Luigi Di Maio played down such concerns, telling reporters that although Rome remained fully committed to its Western partners, it had to put Italy first when it came to commercial ties.
“This is a very important day for us, a day when Made-in-Italy has won, Italy has won and Italian companies have won,” said Di Maio, who signed the memorandum of understanding on behalf of the Italian government in a Renaissance villa.
Taking advantage of Xi’s visit, Italian firms inked deals with Chinese counterparts worth an initial 2.5 billion euros ($2.8 billion). Di Maio said these contracts had a potential, future value of 20 billion euros.
The Belt and Road Initiative (BRI) lies at the heart of China’s foreign policy strategy and was incorporated into the ruling Communist Party constitution in 2017, reflecting Xi’s desire for his country to take a global leadership role.
The United States worries that it is designed to strengthen China’s military influence and could be used to spread technologies capable of spying on Western interests.
WARM WELCOME
Italy’s populist government, anxious to lift the economy out of its third recession in a decade, dismissed calls from Washington to shun the BRI and gave Xi the sort of red-carpet welcome normally reserved for its closest allies.
Some EU leaders also cautioned Italy this week against rushing into the arms of China, with French President Emmanuel Macron saying on Friday that relations with Beijing must not be based primarily on trade.
There was not even universal backing for the BRI agreement within Italy’s ruling coalition, with Deputy Prime Minister Matteo Salvini, who heads the far-right League, warning against the risk of China “colonialising” Italian markets.
Salvini did not meet Xi and declined to attend a state dinner held in honor of the visiting leader on Friday.
Di Maio, who leads the 5-Star Movement, says Italy is merely playing catch up, pointing to the fact that it exports significantly less to China than either Germany or France.
Italy registered a trade deficit with China of 17.6 billion euros last year and Di Maio said the aim was to eliminate the deficit as soon as possible.
After talks with Italian Prime Minister Giuseppe Conte and Di Maio in the morning, Xi flew to the Sicilian city Palermo for a private visit on Saturday afternoon.
He is due to head to Monte Carlo on Sunday before finishing his brief tour of Europe in France, where he is due to hold talks with Macron and German Chancellor Angela Merkel.