Oil breaks through $US70 to hit four-year high

Marco Green
May 8, 2018

Investors are concerned that sanctions against Iran could cut oil supplies.

Russian Energy Minister Alexander Novak also pledged Russia's 100 percent compliance in May with an OPEC-led pact to reduce production. In the first quarter, PDVSA exported 1.19 million bpd of crude from its terminals in Venezuela and the Caribbean, a 29-percent decline versus the same period previous year, according to Thomson Reuters data.

Expectations that the USA will pull out of the Iran deal and refrain from extending sanctions relief are "keeping both crude markers near three-year peaks", says Stephen Brennock of London brokerage PVM Oil Associates; Pres. Trump's self-imposed deadline for a decision on Iran is May 12.

This week, markets were clearly focused far more on the talks between the US President Trump and French President Macron on the Iranian deal. The calculation that is made in market of raw materials is as follows: Iran now produces 3.8 million of barrels daily, and, if Washington opted for hard hand, it will stop exporting equivalent to between half a million and one million barrels per day.

Commercial crude inventories increased 6.2 million bbl this week to 436 million bbl.

Crude production rose by 33,000 bbl/d to 10.6 million bbl/d. China and India bought more than half of the oil. The Strait of Hormuz connects the Persian Gulf with the Gulf of Oman and the Arabian Sea and is the key route through which Persian Gulf exporters-Saudi Arabia, Iran, Iraq, Kuwait, Qatar, the UAE, and Bahrain-ship their oil.

The euro slid to below $1.19 versus the dollar, down half a percent on the day and its weakest since December 28.

U.S. President Trump tweeted Monday he plans to tell the world today whether or not he will reinstate sanctions, Kallanish Energy reports.

US inventory builds have been bearish for the past two weeks, limiting the markets upside. The contract climbed 0.6% last week.

Unsurprisingly, the Middle East is home to most of the oil supply risks.

"We may have other industries that are very valuable, but the oil is special".

US oil major ConocoPhillips has moved to take key Caribbean assets of state-run PDVSA to enforce a $2 billion arbitration award, Reuters reported, potentially dealing a further blow to the Venezualan company's declining oil output and exports. The only question is how low the production could drop.

"The growth in production in the U.S.is being counterbalanced by the simultaneous decline in Venezuela", said Commerzbank analyst Carsten Fritsch. "But if new sanctions are created and the USA pressures European Union nations to follow suit, then the market could be looking much different in a few short months".

The increased geopolitical risks and the recent message from the USA producers highlighting some risks to the United States supply in 2018 points to some risks to U.S. and global oil market balances in the near term.

Other reports by Click Lancashire

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