OPEC Says Global Supply Glut Virtually Eliminated

Darnell Taylor
May 16, 2018

Stephen Innes, head of trading for Asia/Pacific at futures brokerage OANDA in Singapore, told Reuters that the petro-yuan contract is "thundering into action", standing a big chance of eventually rivalling internationally-recognized crude oil benchmarks such as Brent LCOc1 and WTI CLc1.

West Texas Intermediate was up 0.86% to $71.89 a barrel.

In its monthly Oil Market Report for May released Wednesday morning, the International Energy Agency (IEA) said that global crude supplies held steady in April at roughly 98 million barrels per day.

US crude is trading at a steep discount to Brent thanks to sharp increases in USA production, to 10.7 million barrels per day (MMBPD).

With renewed USA sanctions looming against OPEC-member Iran, analysts said crude prices were well supported.

Commercial stockpiles in the OECD countries declined in March by 26.8 million barrels to stand at 2.82 billion, about a million barrels lower than the five-year average and 214 million below the March 2017 level.

Greg McKenna, chief market strategist at futures brokerage AxiTrader, said, "Around a million barrels of oil a day is likely to disappear from global oil markets if the USA sanctions on Iran bite".

Source U.S. Energy Information Administration Short Term Energy Outlook May 2018
Source U.S. Energy Information Administration Short Term Energy Outlook May 2018

"If Iranian crude is really taken off the water, it's going to impact Brent much more than it's going to impact WTI", Mr Zimmerman said.

Saudi Arabia has acknowledged the need to work with producers and consumers to mitigate possible supply shortfalls, which could be offset by higher expected growth in USA oil output of 120,000 bpd this year.

Most analysts surveyed by S&P Global Platts predict the sanctions will remove less than 500,000 b/d of oil supply from the global market by the November enforcement deadline, ranging from 100,000-200,000 b/d at the low end and up to 800,000 b/d at the high end.

Global benchmark Brent gained US$1.11 to settle at US$78.23 a barrel.

In April, Chinese crude oil imports set a new record-at 9.6 million bpd they beat the previous daily record of 9.57 million bpd from January this year. "This has been on the back of improving oil market conditions and rising oil prices", the report said.

Last week, Indian state-refiner Indian Oil Corp (IOC) bought 3 million barrels of USA crude for loading in June.

The oil prices remain firm despite the output increase in USA oil rigs, with the experts estimating that the production may continue to rise for next over half-a-dozen months.

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