An expected drop in the supply of heavy, sour crude, including from sanctions-hit Venezuela, could have longer-term implications for global oil prices, according to the International Energy Agency (IEA).

The US is expected to grow its crude oil production by more than the current output in Venezuela, which has been hit by US sanctions, the Paris-based agency said in its latest report.

However, as long as other producers stick to output commitments already made, the market should work through any oil surplus, the latest IEA oil market report showed.

The IEA’s report looked at the imposition of sanctions by the US against Venezuela’s state oil company PDVSA, which last year shipped about 450,000 barrels per day of oil to the US.

The sanctions, which are already making it difficult for PDVSA to export oil, have added to the collapse of production in Venezuela from 3.4 million bpd to about 1.3 million bpd over the past year.

Other political events that are expected to make their mark on the oil market are US sanctions against Iran, the 930,000 bpd fall in Opec supply in January, and Alberta’s supply cuts, which according to the IEA, will all “impact directly on the supply of heavy, sour oil”.

The reason is, the report said, because PDVSA’s oil is typically of the heaviest quality and requires the addition of significant quantities of imported diluents or domestic blending. Therefore, amid the US sanctions, it will have a tough job to make enough export barrels even before the company has to find a buyer.

In addition, as Venezuelan supplies dwindled, so did Mexico’s, and Saudi Arabia exports to the US fell sharply as they turned their attention to fast growing Asian markets, while Canadian exports, mainly of heavier, sourer crude, poured into the US to partly fill the gap.

However, now, despite the preference of refiners for heavier crudes, prices for heavy barrels are going up as barrels are being removed from the market.

According to the IEA, growth in oil demand in 2019 is expected to be 1.4 million bpd, supported by lower prices and the start-up of petrochemical projects in China and the US.

Global oil supply fell 1.4 million bpd to 99.7 million bpd in January amid cuts to Opec’s output and Alberta’s cuts.

Opec crude output in January was 30.83 million bpd, a near four-year low, as compliance with the Vienna Agreement has been 86%.

Compliance by non-Opec participants was only 25%.

“So far, there are no signs that other producers, like Saudi Arabia, are intending to push more barrels into the market to offset shortfalls. Oil prices have not increased alarmingly because the market is still working off the surpluses built up in the second half of 2018,” the IEA said.

“In terms of crude oil quantity, markets may be able to adjust after initial logistical dislocations,” the agency said.

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

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Drop in Venezuelan crude will impact prices - IEA