Published: Thu, September 20, 2018
Money | By Arnold Ball

Warning of $80 oil price as sanctions on Iran bite

Warning of $80 oil price as sanctions on Iran bite

Oil prices rose on Wednesday following a report of declines in US crude inventories and as looming sanctions against Iran raised expectations of tightening supply, while top producer Russian Federation warned of a fragile global crude market.

Brent futures rose as much as 1.4 per cent on Wednesday, while the United States crude benchmark added as much as 2.9 per cent.

Oil prices fell on Thursday, reversing some of the strong gains from the previous session, as economic concerns raised doubts about ongoing fuel demand growth.

Benchmark Brent crude oil LCOc1 was down 70 cents a barrel at $79.04 by 0830 GMT.

"Oil prices jumped overnight as American Petroleum Institute inventory data showed a large drawdown in inventories", said William O'Loughlin of Australia's Rivkin Securities.

The International Energy Agency warned that oil prices could break out above $80 a barrel unless other producers act to offset deepening supply losses in Iran and Venezuela.

The deliberate spike in production was prompted by concerns about global supply and USA sanctions against Iran that go into effect in November.

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Crude oil also surpassed hydrocarbon gas liquids (HGLs) to become the largest USA petroleum export product, with 1.8 million b/d of exports during the same period.

In Venezuela too, production dipped in August to 1.24 million barrels a day, and should it continue to decline, may hit 1 million barrels a day at the end of 2018. Several Iranian crude carriers are sitting fully laden for weeks.

The U.S. Energy Information Administration has released the September edition of its Short-Term Energy Outlook, increasing its forecast for 2018 ethanol production, but lowering its estimate for 2019 production.

The latest forecast by IEA is that production by non-OPEC members will grow by over 2 million barrels daily during 2018 and by 1.8 million bpd during 2019, due to the non-stop growth in record output by the U.S. "Things are tightening up", the company said in its monthly document. In August, rising output in Libya, Iraq, Nigeria and Saudi Arabia offset declines in Iran, which is about to face new US sanctions that are already hurting Iranian exports, and in Venezuela.

Iranian crude exports have fallen significantly before US sanctions even take effect, the IEA said in a monthly report.

Brent crude traded near a two-month high as shrinking oil inventories pointed to an increasingly tight global market.

Oil traders were also watching the progress of category 4 Hurricane Florence which is expected to make landfall by Friday.

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