Oil prices drop further despite OPEC cuts and Iran sanctions

Oil prices drop further despite OPEC cuts and Iran sanctions

Oil prices fell on Wednesday, weighed down by ample supplies despite ongoing output cuts by producer cartel OPEC and looming USA sanctions against major crude exporter Iran.

Brent crude futures were down 31 cents at Dollars 77.43 a barrel by 11:17 a.m. EDT (1517 GMT), while US crude futures fell 30 cents to USD 71.01 a barrel.

West Texas Intermediate oil is trading at $72.13, a 0.82% gain.

The International Energy Agency (IEA) has warned that global oil supplies could be severely impacted by the United States decision to pull out of the Iran nuclear deal.

Oil rose to $80/bbl for the first time since 2014 as USA crude inventories fell and traders braced for the impact of renewed sanctions on OPEC member Iran. US crude fell 15 cents to $71.16 a barrel as of 10:45 a.m. EDT (1445 GMT), while Brent lost 20 cents to $78.22 a barrel.

OPEC's supply cuts have been swamped by the increase in U.S. output, led by production from shale fields and this, along with the higher price, has made the major forecasting agencies - the IEA, OPEC itself and the U.S. Energy Information Administration - far more cautious.

President Donald Trump's decision this month to withdraw the United States from an worldwide nuclear deal with Iran and revive sanctions that could limit crude exports from OPEC's third-largest producer has given strong tailwind to oil prices.

In early 2017 OPEC, a club of oil-exporting countries, as well as non-OPEC nations led by Russian Federation, implemented a cut in production that has nearly completely erased the global glut of petroleum. This would allow the Saudis to regain market share lost since the 2016 deal between the OPEC and allies, including Russian Federation, to reduce output in order to tighten the global oil market.

As a result, Iran's exports this year are likely to take a 500,000-barrel-per-day hit, from the country's roughly 2,200,000 bpd current exports. If a new nuclear pact is not sealed within next six months, global oil markets will tighten further. Energy economist Phil Verleger says "we could be in store for the greatest market price disruption ever" and sees Brent possibly reaching $120 this summer.

United States crude rose 40 cents to $71.36 a barrel, also near its highest level since November 2014.

The IEA said the previous round of sanctions, which were lifted in early 2016, cut Iran's crude exports by more than 1 million bpd. Uncertain supply meeting increasing demand is a surefire recipe for rising prices, at least in the short run.

OPEC is forecasting US liquids production this year to increase by 1.5 million b/d, with 94% from tight crude and unconventional natural gas liquids, on increased investments and upgraded completion metrics, versus 90% in 2017.

By Navneet Damani Oil prices rallied for much of the week and are near three-year highs. "The bigger picture of demand keeping up with supply.is much more important", Shelton said.

Despite these downward forces, the market retains support from OPEC and other producers' production cuts and US sanctions on Iran.

Related Articles