A downturn in demand forecasts sends oil prices lower

18 May, 2018, 09:34 | Author: Gregory Stephens
  • WTI Crude Oil

As a supply loss in collapsing Venezuela and a potential decline in Iranian oil exports push oil prices up, the pace of demand growth in China could drive global demand growth higher. It stood at $79.39 as of 8:20 pm Nigerian time.

Chief Executive Officer of Total Patrick Pouyanne has predicted that the price of a barrel of crude will hit $100 later this year.

Members of the Organization of Petroleum Exporting Countries, including Saudi Arabia, Kuwait and the United Arab Emirates, said they have enough capacity to fill in any supply gap if renewed sanctions curtail Iran's exports.

"When we backed out of the Iran Nuclear Deal that took about 500 to 800 barrels a day, roughly, off the market initially, and so that created about a $5 lift on the Brent Oil Crude Prices, about $2 to $3 lift on USA prices in the last five days on that", said Eugene Graner, Heartland Investment Services President.

U.S. President Donald Trump announced last week that the United States would withdraw from the Iran nuclear deal, a landmark global agreement signed in 2015.

The prospects of a drop in Iranian oil exports due to sanctions imposed by the U.S. after pulling out from the Iran nuclear deal has moved the prices northwards.

"Supply concerns are top of mind after the U.S. left the Iran nuclear deal", said Norbert Ruecker, head of macro and commodity research at Julius Baer Group Ltd.in Zurich.

Global inventories of crude and fuel have dropped sharply in recent months owing to robust demand and Opec-led production cuts.

Brent Crude
Daily July Brent Crude

Traders are not convinced as Opec's linchpin favours prices around $80 per barrel to help meet budgetary requirements and secure a good price for its planned partial privatisation of state-owned Saudi Aramco.

"While recent data confirms strong growth in first quarter 2018 and the start of second quarter 2018, we expect a slowdown in the second half of the year largely attributable to higher oil prices", the IEA stated.

Senior market analyst Fiona Cincotta at City Index said that although the increased USA production is putting pressure on the oil prices, they are now overshadowed by the lack in production from both Iran and Venezuela.

Going forward, oil prices are expected to remain high due to supply constraints and expected to hinder global economic growth as the geopolitical risks are the major headwinds for the oil market. It allowed India to make a portion of oil payments to Tehran in rupees through state-run UCO Bank that has no USA exposure that could lead it to fall foul of any new sanctions.

Leading production increases is the USA, where crude output has soared by 27% in the last two years, to a record 10.72-million barrels a day, putting the U.S. within reach of top producer Russia's 11-million barrels a day.

And although supplies now only stand at 98 million bpd due to supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC), the IEA said "strong non-OPEC growth. will grow by 1.87 million bpd in 2018".

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


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