Published: Tue, May 15, 2018
Money | By Hannah Jacobs

Oil markets firm amid OPEC cuts, Iran sanctions

The oil cartel's report shows positive signs of the oil market and the joint oil production cut, however, a stronger rivalry from US shale, as it is expected to rise under a relatively higher price.

Both oil futures contracts hit their highest since November 2014 last week at $78 and $71.89 a barrel respectively as markets anticipated a sharp fall in Iranian crude supply once USA sanctions bite later this year.

Additionally, data from market intelligence firm Genscape showed that inventories at Cushing, Oklahoma, the delivery point for US crude futures, fell more than 400,000 barrels in the week to May 11, according to traders who saw the data. Prices rose 26 cents to close at $70.96 on Monday. OPEC has not yet signalled what this may mean for its supply cut accord, but stated that it "stands ready to support oil market stability". This is why the sanctions against Iran is going to impact Brent much more than it is going to impact WTI crude oil.

"US sanctions on Iran take center stage in the oil market", said Norbert Ruecker, head of macro and commodity at Julius Baer & Co in Zurich. Total volume traded was about 24 per cent below the 100-day average.

Global non-OPEC crude supply supply estimates were stable to firmer at 59.62m bbl/day, an increase of 0.01m bbl/day from the previous month.

Futures for September delivery were down 1.2 per cent at 465.5 yuan a barrel on the Shanghai International Energy Exchange.

US drillers added 10 oil rigs in the week to May 11, bringing the total to 844, the highest level since March 2015, energy services firm Baker Hughes said on Friday.

The White House has said it will impose sanctions on companies that continue to purchase Iranian oil but allow them six months to wind down those contracts. Foreign ministers from the UK, France and Germany will meet with their Iranian counterpart, Javad Zarif, to discuss salvaging an accord that allows Iranian oil exports, after the USA withdrew last week.

Moody's, for its part, said its baseline assessment was that oil prices would be volatile, trading in the range of $45 to $65 per barrel.

OPEC is to focus on oil inventory, rather than price.

"Oil prices are touching fresh multi-year highs as robust demand prospects coupled with a tense geopolitical backdrop make for a potent bullish cocktail", said Stephen Brennock, analyst at London brokers PVM Oil Associates.

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