A downturn in demand forecasts sends oil prices lower

Ivan Schwartz
May 18, 2018

Crude has rallied this month after U.S. President Donald Trump pulled out of a nuclear agreement with world powers that had eased sanctions on Iran in exchange for curbs on its atomic program.

U.S. West Texas Intermediate (WTI) crude futures CLc1 settled unchanged at $71.49, after earlier also hitting their highest since November 2014 at $72.30 a barrel.

At 432.4 million barrels, USA crude oil inventories are in the lower half of the average range for this time of year.

"It means that OPEC oil becomes that much more necessary", he said.

Benchmark oil contract Brent North Sea surged above $80 a barrel Thursday, hitting the highest level since November 2014 on concerns that Iranian exports could fall due to renewed United States sanctions and reduce supply in an already tightening market.

Opec crude production eased in April to almost 31.7m b/d, even as demand for the cartel's crude is expected at a greater level of 32.2m b/d this year.

"The geopolitical noise and escalation fears are here to stay".

"Supply concerns are top of mind after the United States left the Iran nuclear deal", said Norbert Rücker, of Julius Baer.

Oil stocks were expected to drop further as the peak summer driving season nears, offsetting increases in USA shale output, Bernstein analysts said.

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Inventories fell 1.4 million barrels, while domestic production rose to 10.7 million barrels a day, the Energy Information Administration said.

ANZ said the falling USA inventories were "raising concerns of tight markets heading into the US driving season", during which demand typically rises.

OPEC crude oil production in April decreased by 130,000 barrels a day to 31.65 million barrels, largely due to further deterioration in Venezuelan production and lower output from Africa.

Oil fell on Wednesday ahead of an anticipated rise in US crude inventory that could provide more evidence that demand may be slowing in spite of ongoing crude output cuts by producer group OPEC and imminent USA sanctions against Iran, Reuters reports.

Crude oil prices are slightly higher today - Brent is now making greater gains relative to WTI.

Analysts pointed out that the oil market remained relatively calm as there was no new catalyst on Thursday, but uncertainties remain due to US sanctions on Iran.

"U.S. shale can not solve the current oil supply problems", it said, arguing that US oil would not be sufficient to offset production losses from Iran, Venezuela and Angola.

OPEC kingpin Saudi Arabia said on Thursday it would make sure the world is adequately supplied with oil just as major consumer India expressed frustration with rising prices.

Other reports by GizPress

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