U.S. crude oil inventories continue to decrease in week to May 11

Andrew Cummings
May 17, 2018

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. "Plus we see a high likelihood of OPEC working with Russian Federation in 2019 to set a floor on oil 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.

More figures on US oil output will be released separately by the EIA and International Energy Agency on Wednesday.

Oil hits high

"The potential double supply shortfall represented by Iran and Venezuela could present a major challenge for producers to fend off sharp price rises and fill the gap, not just in terms of the number of barrels but also in terms of oil quality", the Paris-based organization said.

However, sometimes slogans can become an embarrassment as Drill, Baby, Drill turned to Spill, Baby, Spill following the 2010 Deepwater Horizon oil spill at a British Petroleum offshore drilling rig in the Gulf of Mexico.

Iran, once a keen OPEC price hawk, now wants lower prices than Saudi Arabia, and has said exporters should aim for crude around US$60 to contain U.S. shale oil growth. 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 the same time, China's domestic crude oil production has been languishing near June 2011 lows in the first quarter this year, prompting higher imports to meet growing demand.

OPEC and its allies are cutting production by about 1.8 million barrels per day, nearly 2% of world supply, until the end of 2018. A stronger dollar makes it more expensive to buy dollar-denominated commodities like oil.

"For now, the rapidly-changing geopolitical landscape will move the attention away from stocks as producers and consumers consider how to limit volatility in the oil market", the IEA said.


OPEC, on the other hand, raised their demand forecast by 25,000 bpd from the April report, to 1.65 million bpd. Non-OPEC output will grow by 1.87 mb/d in 2018, a slightly higher rate than seen in last month's Report. Although the group said its crude output inched up in the previous month, investors interpreted the minimal increase as a sign of OPEC's continued commitment to rebalancing the market, especially from its de facto leader Saudi Arabia.

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.

The API reported Tuesday that USA crude supplies rose by almost 4.9 million barrels for the week ended May 11. Yet a big drop in Gasoline supply of 3.369 million barrels and a 768,000-barrel drop in distillate should give the market some support. The high price of Brent is attracting US exports.


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