Real Risks Rising

The risks to oil supply are rising as supplies start to fall. Oil is starting to feel the gravity of the loss of Venezuelan oil supply and the commitment by OPEC to cut back supplies, raising concerns of a tightening U.S. oil market. Those concerns were enhanced after the American Petroleum Institute reported a larger than forecast 2.6 million barrel drop in crude oil supply, led by a 1.1 million barrel drop in the Cushing Oklahoma delivery hub. Gasoline also saw an immense 5.8 million barrel drop in supply and distillates with a modest 195,000 barrel increase.

To add to the geopolitical concerns, Iran is threatening to respond to any Israeli naval action against its oil shipments according to a Reuters report. Iran's defense minister made these comments on Wednesday, a week after Israel's prime minister said its navy could act against Iranian oil "smuggling" to enforce U.S. sanctions.

Bloomberg reports that U.S. Energy Secretary Rick Perry said the decline of oil output from Venezuela will continue until there’s a change of leadership. Bloomberg reports that the International Energy Agency stated Monday that it expects Venezuelan output to fall to 800,000 bpd this year. Power outages in the nation have slowed production that has already been dropping in the aftermath of U.S. sanctions on Petroleos de Venezuela SA, the state-owned oil company. “I think that until there is a change of leadership there, that being able to get their oil and gas production back in a positive direction is going to be threatened,” Perry told reporters at a press gathering during the CERAWeek by IHS Markit conference in Houston.

This comes as the Energy Information Administration (EIA) cuts its forecast for U.S. production in 2019 and 2020. The EIA says that both years are still on track for new production records, yet smaller than previously thought. The March forecast expects calls for U.S. production to exceed 13 million barrels per day in the third quarter of 2020 for the first time, instead of in the second quarter as previously forecast. The change resulted from lower production expectations out of the Gulf of Mexico and the Niobrara and Anadarko shale plays.

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