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WTI crude drops under supply pressure, but Brent ticks higher

31 May, 2018, 22:04 | Author: Kristi Dunn
  • Hedge funds trimmed their net-long position—the difference between bets on a price increase and wagers on a drop—in Brent crude by the most in almost a year

Oil earlier in May rose to a 3½-year high after US President Donald Trump chose to renew sanctions on Iran and as plunging Venezuelan output fuelled concerns over disruptions.

Pressure has been on the rise since the International Energy Agency published its monthly report acknowledging that the oil market was now balanced and that commercial glut in major industrial countries fell by about 1 million barrels. Energy ministers of Russian Federation and Saudi Arabia said their countries were ready to ease oil production cuts to calm consumer fears and reassure the global markets that sufficient supplies are available.

Both are light, sweet crude oils although WTI is generally sweeter and lighter than its European counterpart.

This reversal is in line with our baseline view that the rally in oil prices was a deviation from market supply-demand fundamentals and a moderation is oil prices was in the offing.

The price for Brent crude oil, the global benchmark, closed at $80.09 on May 17, its highest level in four years, in response to U.S. President Donald Trump's decision to pull out of a multilateral Iranian nuclear agreement.

India being a large crude oil importer benefits from lower oil prices.

The existing deal came into force on January 1, 2017, and envisaged global oil producers reducing their combined output by 1.8 million barrels per day (bpd) to cut bloated stockpiles and prop up oil prices.

Kremlin critic Arkady Babchenko shot dead on his way to buy bread
Vasyl Gritsak, head of Ukraine's security service, initially appeared at the conference before inviting Mr Babchenko to join him. Babchenko served in the Russian Army during the first separatist war in Chechnya in the 1990s before he became a journalist.

China has also raised concerns about whether enough oil is being pumped, according to a Saudi statement issued after Energy Minister Falih called China's energy chief on Friday to discuss cooperation between their countries and to review the oil market. But now, the memory of oil at US$30 is still too fresh, and a lot of oil consumers enjoyed faster economic growth thanks to cheap oil-they may be unwilling to pay so much more so soon. Last week there was a strike by Brazilian truckers over high diesel prices.

"It was always going to be a tricky announcement of when to ease production cuts", said Ole Sloth Hansen, head of commodities research at Saxo Bank A/S in Copenhagen.

The short-term focus will center on the June 22 Opec meeting in Vienna.

"There's some discord among the Gulf countries as to whether or not they should increase now or not", Kilduff said. It is likely that OPEC and non-OPEC members will try to bring back production cuts to a 100 per cent compliance level of the agreed production ceiling from the current level of over 150 per cent.

Meanwhile, surging USA crude production showed no sign of abating as drillers continued to expand their search for new oilfields to exploit. The global sulfur limit on fuel oil will be set at 0.50 percent m/m (mass/mass) in 2020, a significant cut from the 3.5 percent m/m global limit now in place.

Whatever the movements in spot prices, the majority of oil companies have had to adapt to lower oil prices over the past couple of years, drastically cutting costs and investment.

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