Crude Oil Smashes $80/b On Iran Sanctions, Lower Supplies

WTI Crude Oil

China is crucial to global oil demand growth, and if it keeps its current growth pace, it would support the strong demand growth that analysts expect. "Plus we see a high likelihood of OPEC working with Russian Federation in 2019 to set a floor on oil prices". The "effect of higher prices should in particular become apparent in gasoline demand in the next few months", it said. Well, we are not there yet.

The IEA said global oil demand would average 99.2-million bpd in 2018, although United States bank Goldman Sachs said consumption would cross 100-million bpd "this summer".

Crude oil prices moved higher Wednesday after a US crude inventory report showed domestic crude stocks falling more than expected.

While all eyes are riveted on Iran and the Middle East, the pace of Chinese oil demand growth could be the most underappreciated story in oil markets right now, Bloomberg Opinion columnist David Fickling writes.

Asia's demand is at record highs and with rising prices its crude could cost $1 trillion this year, about twice what it paid during the market lull of 2015/2016.

Commerzbank and Emirates NBD had the lowest 2018 Brent price forecast at $69 a barrel, while Nomisma Energia had the highest forecast for the year at $75.41. Markets face other disruptions besides Iran, with Venezuela's output plunging to the lowest since the 1950s as its economy unravels.

The IEA talks its book when it comes to demand.

However, the cure for higher oil prices tends to be higher oil prices. A stronger dollar makes it more expensive to buy dollar-denominated commodities like oil.

OPEC, on the other hand, raised their demand forecast by 25,000 bpd from the April report, to 1.65 million bpd. The upward revision was mainly the result of firm Organisation for Economic Co-operation and Development (OECD) data for the first quarter of 2018.

The crude oil inventories are in and traders are wondering what to do with them.

Crude inventories fell by 1.4 million barrels (MMBbl) in the week ended May 11, compared with analysts' expectations for a decrease of 763,000 Bbls.

Goldman also said the tight market left “room for OPEC to exit (its production cuts) without significant price impact.”.

Increased tight oil production and an increase in output from Canada and Brazil should further support non-OPEC supply toward the end of this year. The call on OPEC crude and stockpiles will average around 32.25 million barrels a day for the remainder of 2018, about 600,000 higher than April output.

Twenty-four OPEC and non-OPEC producers, most notably Russian Federation, are expected to continue a deal (called the "Vienna Agreement") to cut production by 1.2 mb/d until at least the end of 2018 and the strategy has been working with benchmark Brent crude now trading around $78 a barrel and WTI nearly touching $71. A switch to contango, where upfront supplies sell for less than later-dated barrels, might be a warning sign for the bulls.

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