Oil dips on signs of ample supply despite OPEC cuts, Iran sanctions

Oil dips on signs of ample supply despite OPEC cuts, Iran sanctions

Oil dips on signs of ample supply despite OPEC cuts, Iran sanctions

The International Energy Agency (IEA) has warned that global oil supplies could be severely impacted by the U.S. decision to pull out of the Iran nuclear deal. "Plus we see a high likelihood of OPEC working with Russian Federation in 2019 to set a floor on oil prices".

World oil prices have surged more than 70 percent over the previous year as demand has risen sharply while production has been restricted by the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, and other producers, including Russian Federation. Speculators could liquidate en masse and demand growth may underperform, while the amount of Iranian oil taken offline could end up at the lower end of expectations. The global benchmark crude traded at a $7.75 premium to West Texas Intermediate for delivery the same month. This was followed by CNBC and Oil Price Information Service's (OPIS) Tom Kloza calling for the same. According to the experts' projections, daily oil consumption across the globe will increase by 1.5 million barrels in 2018 and 1.4 million barrels next year.

Ample supplies in the market and potential production increases by USA and European oil giants helped ease recent price hikes.

At what point will demand be negatively impacted by higher prices?

Trade group the American Petroleum Institute said crude stockpiles rose almost 5 million barrels, compared with analysts' expectations for a 763,000-barrel draw.

India received about 397,200 bpd of oil from Venezuela in April, the highest since September, up about 46.8 percent from a year ago, the data showed.

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Markets are treading carefully around uncertainty over Iran's supply, however, and signs of ample supply kept a lid on price rises Wednesday. A stronger greenback makes it more expensive to buy dollar-denominated commodities like oil.

OPEC, on the other hand, raised their demand forecast by 25,000 bpd from the April report, to 1.65 million bpd.

Venezuela's production is plummeting, and output is 550,000 bpd below it's agreed upon target as part of the OPEC deal.

The International Energy Agency on Wednesday warned global demand is likely to moderate this year, as the price of crude nears $80 a barrel and many key importing nations no longer offer consumers generous fuel subsidies. The demand for OPEC's crude for 2018 is 32.7 Mbd, based on the cartel's estimates, but current production is lower at 31.9 Mbd-bringing the deficit to about 800,000 b/d.

The most unlikely source of reason in the analytical debate over crude on Wednesday was Iran, whose oil minister Bijan Zanganeh told media that prices at $60 to $65 was "logical"; a source explained this mindset by pointing out, "When oil prices rise due to geopolitical concern and not due to demand and supply and fundamentals, it can not be reasonable". Gasoline stockpiles also shrank last week by 3.79 million barrels, the EIA reported. The high price of Brent is attracting USA exports.

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