IEA cautions consumption decline as oil price advances to $80

Darnell Taylor
May 17, 2018

After the US' decision to withdraw from the Iranian denuclearization deal, oil prices have elevated as traders wait to see how the Middle East will stabilize following the re-imposition of hefty United States sanctions on Iran trade. "With the dollar strengthening, higher oil prices and softening economic growth, we see a threat to demand growth from 2019", BMI Research said on Thursday.

More figures on USA oil output will be released separately by the EIA and International Energy Agency on Wednesday. June WTI futures are trading in a consolidation pattern around the $71.00 handle.

Oil settled higher Tuesday, with supply concerns tied to political unrest in the Middle East lifting prices for the global crude benchmark to its highest finish in 3 1/2 years. Our only caveat regarding the ongoing bull market is that traders should wait for a better entry price before buying the commodity.

China, the world's top crude oil buyer, imported around 655,000 barrels a day on average from Iran in the first quarter of this year, according to official Chinese customs data - equivalent to more than a quarter of Iran's total exports. However the IEA - which advises oil-consuming nations - has warned that prices are high enough to hurt consumption, and trimmed its forecasts for demand growth.

The direction of oil prices is highly dependent on OPEC's decision at its meeting next month and its actions the rest of the year.

Analysts polled by S&P Global Platts expect the EIA Wednesday to report across-the-board weekly declines in petroleum supplies, with crude down 2.3 million barrels, gasoline seen down by 2 million barrels and distillates, which include heating, expected to fall by 1.3 million barrels.

"For now, the rapidly-changing geopolitical landscape will move the attention away from stocks as producers and consumers consider how to limit volatility in the oil market", the IEA said.

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Markets are treading carefully around uncertainty over Iran's supply, however, and signs of ample supply kept a lid on price rises Wednesday. The reason why this irks me is that many people look to this forecast to make designs about investing and their past doom and gloom about demand probably led to less energy investment that was needed to feed growing global oil demand. Robust non-OPEC output offset lower OPEC production.

The API reported that crude supply increased by 4.845 million barrels versus an expectation of a draw of 1.75 million barrels.

"In these early days, there is understandable uncertainty about the potential impact on Iran's oil exports" because of U.S. sanctions, it said.

The agency trimmed its 2018 world demand growth projection by 40,000 barrels a day to 1.4 million a day, projecting total consumption at 99.2 million barrels a day.

OPEC, for its part, estimated that the excess oil inventories in the OECD had shrunk to just 9 million barrels.

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