Oil sticking to high points, WTI getting comfortable around $71

Cornelia Mascio
Mag 17, 2018

"When oil prices rise due to geopolitical concern and not due to demand and supply and fundamentals, it can not be reasonable", a source familiar with Iranian thinking said of the current rally.

The IEA is anxious that we will see demand destruction because of higher oil prices.

The Organization of the Petroleum Exporting Countries and other large oil producers led by Russian Federation, have agreed to cut their combined oil output by 1.8 million bpd to reduce bloated global oil inventories and support prices.

"In these early days, there is understandable uncertainty about its potential impact on Iran's oil exports, which are now about 2.4 mb/d", the IEA noted.

Mihir Kapadia, CEO and founder of Sun Global Investments, agrees that geopolitical tensions are driving energy prices higher, with unrest is building in Venezuela ahead of this weekend's presidential elections. Oil markets reacted bullishly, with worldwide benchmark Brent crude rising about 8 percent to $71 a barrel.

"Supply concerns are top of mind after the US left the Iran nuclear deal", said Norbert Ruecker, head of macro and commodity research at Julius Baer Group Ltd.in Zurich.

It's also a busy morning in the City, with estate agent Foxtons warning that the London property market remains "very challenging", Ocado landing a partnership with United States retailer Kroger, and Mothercare announcing the return of once-sacked CEO Mark Newton-Jones.

Analysts project that oil exports from Iran could be reduced by about 0.5 million barrels a day as South Korea and Japan trim their imports, said analysts for J.P. Morgan in a recent report. However the IEA - which advises oil-consuming nations - has warned that prices are high enough to hurt consumption, and trimmed its forecasts for demand growth. At what point does the price of oil cut demand.?

A huge boom in oil prices over the past year - with prices rising 75 percent since last July - will also likely have an effect on demand. There's no guarantee that the Saudis will step in to increase production and make up for Iran's lost barrels-after all, the Kingdom has not expressed concerns over the declines in Venezuela. The IEA noted that the last time sanctions were imposed in 2012 until 2015, production from the world's fifth-largest producer fell by about 1.2 million barrels a day (mb/d) "but only time will tell the extent of the disruption this time round".

For the fifth straight month, OPEC in March set a fresh record for complying with its agreed oil-production cuts, with the goal of re-balancing the market finally in sight.

The agency trimmed its 2018 world demand growth projection by 40,000 barrels a day to 1.4 million a day, projecting total consumption at 99.2 million barrels a day. The results have seen United States oil imports fall back, with China now overtaking the U.S. as the world's largest oil importer, and the USA acting as the global swing oil producer, taking that mantra from OPEC.

OPEC, for its part, estimated that the excess oil inventories in the OECD had shrunk to just 9 million barrels. The high price of Brent is attracting US exports.

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