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.


Pakistani central bank lifts interest rate as inflation bites

Updated 20 May 2019
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Pakistani central bank lifts interest rate as inflation bites

ISLAMABAD: Pakistan’s central bank raised its key interest rate to 12.25% on Monday, warning that already soaring inflation risked further rises on the back of higher oil prices and reforms required for a bailout from the International Monetary Fund.
The 150 basis points increase follows a preliminary agreement last week with the IMF for a $6 billion loan that is expected to come with tough conditions, including raising more tax revenues and putting up gas and power prices. It was the eighth time the central bank has increased its main policy rate since the start of last year.
With economic growth set to slow to 2.9% this year from 5.2% last year, according to IMF forecasts, the rate rise adds to pressure on Prime Minister Imran Khan, who came to power last year facing a balance of payments crisis that has now forced his government to turn to the IMF.
Higher prices for basic essentials including food and energy has already stirred public anger but the central bank suggested there was little prospect of any immediate improvement.
Noting average headline inflation rose to 7% in the July-April period from 3.8 percent a year earlier, the central bank said recent rises in domestic oil prices and the cost of food suggested that “inflationary pressures are likely to continue for some time.”

 

It said it expected headline inflation to average between 6.5% and 7.5% for the financial year to the end of June and was expected to be “considerably higher” in the coming year. Expected tax measures in next month’s budget as well as higher gas and power prices and volatility in international oil prices could push inflation up further, it said.
It said the fiscal deficit, which the IMF expects to reach 7.2% of gross domestic product (GDP) this year, was likely to have been “considerably higher” during the July-March period than in the same period a year earlier due to shortfalls in revenue collection, higher interest payments and security costs.
Despite some improvements, financing the current account deficit remained “challenging” and foreign exchange reserves of $8.8 billion were below standard adequacy levels at less than the equivalent of three months of imports.
The central bank said it was watching foreign exchange markets closely and was prepared to take action to curb “unwarranted” volatility, after the sharp fall in the rupee over recent days that saw the currency touch a record low of 150 against the US dollar.
Details of what Pakistan will be required to do under the IMF agreement, which must still be approved by the Fund’s board, have not been announced but already opposition parties are planning protests.
As well as higher energy prices that will hit households hard, there are also expectations of new taxes and spending cuts in next month’s budget to reach a primary budget deficit — excluding interest payments — of 0.6% of GDP.
With the IMF forecasting a primary deficit of 2.2% for the coming financial year, that implies squeezing roughly $5 billion in extra revenues from Pakistan’s $315 billion economy, which has long suffered from problems raising tax revenue.

FACTOID

Pakistan’s economic growth is set to slow to 2.9% this year.