Fujairah: Oil markets are tightening due to healthy demand, geo-political tensions as well as an Organisation of Petroleum Exporting Countries (Opec) output cut agreement, a top executive at S&P Global Platts told Gulf News on Wednesday.

“Saudi Arabia, Iran tensions and uncertainty surrounding Iran deal added about $5 [Dh18.36] to the market at the back end of the last year. And also Venezuela is seeing a significant problems from a capital investment perspective creating an impact on its production not seen since 1989,” said Chris Midgley, head of analytics at S&P Global Platts.

“There is a relatively small amount of oil that in [the] short-term is available to come onto the market. All the surplus oil that is built in the last three years is being depleted.”

Global benchmark Brent was trading at around $68.53 per barrel and West Texas Intermediate at $64.08 per barrel on Wednesday at around 4.28pm.

The Opec cuts have played their role in balancing oil markets, he said, adding that the member countries will continue to keep the markets tight.

“They are in this for a long term. Opec’s view is that there is still 100 million barrels of oil a day of surplus stock to go down. They seem to be well committed. They also don’t have much spare production to bring back onto the market,” Midgley said.

He added that demand still remains healthy with 2 million barrels of oil a day demand growth last year and this year it is forecast to be around 1.8 million barrels a day.

Speaking on the US shale oil production, Midgley said there will be about a million barrels a day of growth and that oil is needed to avoid oil prices shooting up beyond $80 per barrel.

“We do see that the producers are showing much greater discipline. They are trying to focus on cashflow and not much on the production growth. We are also starting to see costs of production going up including the cost of rigs and the cost [of] fracking.

“Shale oil will continue to grow but it’s not at the levels that will flood the market and put huge pressure on prices. However, we will start to see a little bit of softness probably in the second quarter due to slightly weaker demand, some refinery maintenance and less maintenance on the production side.”

Asked whether oil producers will exit from the output cut agreement, Midgley said Opec is well committed to production cuts, but in June or July if oil prices start to test $80 per barrel, they might relax some of their production quotas in order to soften the market.