Oil slips as economic concerns counter tightening supplies

Cornelia Mascio
Settembre 14, 2018

US West Texas Intermediate (WTI) crude futures were at $69.88 per barrel at 0635 GMT, down 49 cents, or 0.7 percent, from their last settlement.

With Middle East crude markets also tightening because of the USA sanctions against Iran, many Asian refiners are seeking alternative supplies, with South Korean and Japanese imports of US crude hitting a record in September.

Oil prices fell more than 2 percent on Thursday, with Brent slipping back from four-month highs as investors focused on the risk that emerging market crises and trade disputes could dent demand even as supply tightens.

"Things are tightening up", the agency that advises Western governments on energy policy said in its monthly report.

USA sanctions on Iran's energy industry, which come into force in November, have already cut supply back to two-year lows, while falling Venezuelan output and unplanned outages elsewhere will also keep the balance between supply and demand tight, the IEA said.

"While we aren't explicitly forecasting Brent to rise to $100 a barrel, we see real risks of this happening".

"The fact that much higher supply is already needed from the likes of Saudi Arabia - and the low levels of spare capacity remaining - leave the global system highly vulnerable to any further significant outage", he said.

The Persian country will by November 4 see a slew of countries already abandoning oil supply contracts and the rest scrambling for alternatives as crushing U.S. sanctions on Iran threaten to impose additional sanctions on those defying the ban on crude imports from the country.

"Markets ... are expecting substantial price pressure as Iran sanction loom", said Stephen Innes, head of trading for Asia-Pacific at futures brokerage OANDA in Singapore. "The last couple of weeks have seen the expected squeeze on Iranian crude flows taking shape, with overall outflows down markedly", consultant JBC Energy said.

Russian energy minister Alexander Novak on Wednesday warned of the impact of United States sanctions against Iran.

Though weekly output slipped, the United States likely surpassed Russian Federation and Saudi Arabia earlier this year to become the world's largest crude oil producer, based on preliminary estimates from the Energy Information Administration.

One factor that could weigh on long-term fuel demand is China's decision to take at least 1 million heavy duty diesel trucks off the roads by 2020, and to replace them with vehicles using alternative fuels like electric engines, liquefied natural gas or to shift transport to rail. "Russia has the potential to raise production by 300,000 barrels (per day) mid-term, in addition to the level of October 2016", he said.

The Organization of the Petroleum Exporting Countries (OPEC) on Wednesday reduced its forecast for 2019 global oil demand growth, pointing to economic risks.

That month Russian Federation produced 11.247 million bpd, a post-Soviet Union record-high.

Oil traders were also watching the progress of category 4 Hurricane Florence, which is expected to make landfall in the United States by Friday.

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