Crude: The demand downers

17 May, 2018, 17:54 | Author: Regina Silva
  • Kuwait Promises To Increase Oil Production In Case Of War

"Global oil inventories are already either below or at the five-year average".

At what point will demand be negatively impacted by higher prices?

The tight supply of oil in the markets has terminated the accumulation of global supplies that have cut prices between the end of 2014 and the beginning of 2017.

Of course, it's commonly known that OPEC wants to maintain its output cuts to drive prices higher and thus improve the economies of many member countries; Saudi Arabia is OPEC's leading supporter of measures to boost prices, and it is said the kingdom would be happy to see crude rise to $80 or even $100.

Concerns over the impact of United States re-sanctioning on Iran apart from other factors like economic crisis in Venezuela are keeping the oil prices high.

Not all indicators pointed to a tighter market, however.

"In these early days, there is understandable uncertainty about the potential impact on Iran's oil exports" because of USA sanctions, it said. Since the European Union is unlikely to follow the U.S.in re-imposing sanctions on Iran, the overall impact on the Persian Gulf state's exports will be "far more muted" than in the past, tanker tracker Petro-Logistics said in a note.

A rapid decline in Venezuela's crude production has further roiled markets in recent months.

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OPEC increased its forecast for global oil demand growth this year but qualified it, noting that sanctions, tariffs, and the US withdrawal from the Iran nuclear deal point to rising uncertainty over the global economic growth momentum. However, it's reported that prices for black gold may soar even higher, as an agreement between the Organization of the Petroleum Exporting Countries (OPEC) and other major producers, including Russian Federation, to slash output is still helping to reduce supply.

The U.S.' answer to high prices is to drill, baby, drill.

Twenty-four OPEC and non-OPEC producers, most notably Russian Federation, are expected to continue a deal (called the "Vienna Agreement") to cut production by 1.2 mb/d until at least the end of 2018 and the strategy has been working with benchmark Brent crude now trading around $78 a barrel and WTI nearly touching $71.

Increasing production in the US could also prevent price increases. Current conditions-with geopolitical unrest, unplanned supply outages, thin spare capacity, and rising demand-mirror the state of affairs in 2008 and 2011, when prices rallied into triple-digit territory.

A huge boom in oil prices over the past year - with prices rising 75 percent since last July - will also likely have an effect on demand.

"During the meeting, Mr. Khoshrou conveyed Mr. Zarif's message that Iran hopes China will maintain the levels of imports", said one person briefed on the meetings.

Still, the cartel's leader Saudi Arabia and some analysts believe oil prices can rise higher still before they start hurting production.

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