Iran, Venezuela weighing on oil market: IEA

Brunilde Fioravanti
Mag 16, 2018

WTI futures for July traded just above $71 a barrel Tuesday in NY, while Dubai oil swaps were at over $74, according to data compiled by Bloomberg. The rising oil prices are also giving the government a headache as a chunk of its annual budget will now be required in its purchase, thereby compromising on other social sectors.

Despite Wednesday's dips and some indicators implying the financial oil has overshot physical oil, overall crude market conditions have tightened since 2017 when the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, started to withhold supplies to push up oil prices.

West Texas Intermediate, the USA marker, is $3.21 a barrel below Middle East benchmark Dubai. "The spread between the two contracts is basically Europe and Asia screaming for more oil from the United States to fill the potential void and feed their ravenous oil demand", he said. "The strong global demand for WTI will keep us supported, and even if some of the global risks get reduced, WTI will benefit from the unwinding of the Brent versus WTI spread that is reflecting most of the geopolitical risks". "The API inventory data in the U.S. fits with. a topping pattern or at least a decent pause for oil prices at the moment", said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

After the plans for the U.S. to pull out of the Iran nuclear deal became known, oil prices surged over the uncertainty of what would happen to Iran's oil industry if the USA reimposed sanctions, limiting Iran's production.

Oil eased on Wednesday after a rise in US crude inventory added to signs demand may be slowing in spite of ongoing output cuts by producer group OPEC and imminent USA sanctions against Iran.

The decision by US President Donald Trump to withdraw from the Iran deal "has switched the focus of oil market analysis from the fundamentals to geopolitics", the International Energy Agency wrote in its regular monthly report.

US shale oil production, meanwhile, is forecast to continue its climb.

The IEA also said OECD oil stocks had fallen below the five-year average level for the first time in March, by 1 million barrels, representing a benchmark for the success of OPEC/non-OPEC production cuts. The U.S. crude contract fell as much as 0.6 percent to $70.95 a barrel on Wednesday.

On Nymex, June gasoline rose 0.2% to $2.205 a gallon, while June heating oil ended little changed at $2.249 a gallon.

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