Rising crude prices may singe wallets

Lawrence Kim
May 16, 2018

With the tensions rising in the Middle East, there is no doubt that the market focus will rest on the price of oil, given Iran is the third-largest oil producer in the Organisation of Petroleum Exporting Countries (OPEC).

Brent crude oil reached an intraday peak of $79.47 a barrel, up $1.24 and its highest since November 2014, before retreating to $78.14, down 9 cents by 10:09 EDT.

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 price spread between US benchmark WTI and Brent has widened to more than $7 a barrel.

Spot crude oil cargo prices are at their steepest discounts to futures prices in years as sellers are struggling to find buyers for West African, Russian and Kazakh cargoes, while pipeline bottlenecks trap supply in west Texas and Canada.

In its monthly report, the Paris-based IEA cut its forecast for global demand growth to 1.4 million barrels per day for 2018, from a previous estimate of 1.5 million bpd.

Now the United States has announced it will impose sanctions on Iran over its nuclear program, raising fears that markets will face shortages later this year when trade restrictions come into effect.

Iran will restart its uranium enrichment if it can not find a way to save the 2015 nuclear deal with the European Union after the United States pulled out last week, Tehran's government spokesman said.

These risks, including the re-imposition of oil sanctions against Iran, and the upcoming results of May elections in Venezuela, may materialise into actions that remove oil supplies from the global market, and in turn, tighten global oil balances.

Refinery runs in March also jumped to a record as import quotas for the small independent refiners-the so-called "teapots"-were increased and refinery margins stayed healthy".

The call on OPEC crude and stocks will average around 32.25 mb/d for the remainder of 2018, almost 0.6 mb/d higher than April output, according to the report.

Additionally, the market retreated as the U.S. Dollar strengthened against other currencies to the highest since December.

Despite these downward forces, the market retains support from OPEC and other producers' production cuts and US sanctions on Iran.

The agency estimates that global oil inventories fell an average of almost 0.6 million barrels per day (bpd) in each of the past five quarters (January 2017 through March 2018).

Other reports by Click Lancashire

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