Oil prices near $80 a barrel as concern grows over global supply

Irving Hamilton
September 14, 2018

Oil prices were up on the week, buoyed in earlier sessions by a larger-than-expected draw in US crude inventories, weakness in the USA dollar and a reported fall in USA production, Commerzbank said in a note.

With Middle East crude markets also tightening because of the USA sanctions against Iran, many Asian refiners are seeking alternative supplies, with South Korean and Japanese imports of US crude hitting a record in September.

Brent crude futures rose US$1.69, or 2.2 percent, to settle at US$79.06 a barrel.

"Things are tightening up", the agency said in its monthly report, but added: "As we move into 2019, a possible risk to our forecast lies in some key emerging economies, partly due to currency depreciations versus the U.S. dollar raising the cost of imported energy".

Expect a major oil price rally in November as a direct result of sanctions on Iran, not to mention a moribund Venezuelan oil production, and USA oil reserves falling.

"We think oil market fundamentals are increasingly supportive of crude prices, at least at current levels", said Gordon Gray, HSBC's global head of oil and gas equity research.

Since spring when the Trump Administration said it would impose sanctions on Iran, crude traders have priced in a risk premium reflecting the supply shortages that may occur when exports from the third-largest OPEC member are cut.

"Iran is increasingly becoming the preoccupation of the crude market".

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U.S. West Texas Intermediate (WTI) crude futures were at $67.70 per barrel at 0637 GMT, up 65 cents, or 0.2 percent from their last settlement.

Oil traders were also watching the progress of category 4 Hurricane Florence, which is expected to make landfall in the USA by Friday. "Russia has the potential to raise production by 300,000 barrels (per day) mid-term, in addition to the level of October 2016", he said.

OPEC said it expects demand growth of 1.41 million bpd in 2019, a 20,000-bpd downgrade from its previous forecast.

"Saudi Arabia, OPEC's largest producer, saw its output rise modestly to 10.40 million bpd, up 38,000 bpd from the previous month, according to secondary sources, S&P Platts reported".

Demand for crude from the Organization of the Petroleum Exporting Countries will moderate in 2019 to 31.9 million bpd, from an estimated 32.3 million bpd this year, the IEA said.

"Going forward, economic uncertainty, and hence questions surrounding global oil demand, coupled with geopolitical tensions, will need to be factored into maintaining a balanced market in the months to come", the report said.

Innes said the slight dips on Thursday came as rising refined product inventories, which the EIA also reported, "slightly dampened market overexuberance" as it indicated that USA fuel demand may be weakening.

U.S. crude stocks fell by 8.6 million barrels in the week to September 7 to 395.9 million, the American Petroleum Institute (API) said on Tuesday, while the U.S. Energy Information Administration (EIA) cut its forecast for U.S. crude output growth in 2019.

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