Monday, 28 May, 2018

Oil breaks US$70 as market awaits USA call on Iran

Oil breaks US$70 as market awaits USA call on Iran Oil breaks US$70 as market awaits USA call on Iran
Nina Mathis | 08 May, 2018, 02:16

Brent for July settlement climbed 14 cents, or 0.2 percent, to $75.01 on the London-based ICE Futures Europe exchange.

Iran has re-emergedas a major oil exporter in 2016 after global sanctions against it were lifted, and Trump has a May 12 deadline to determine whether to extend sanction waivers.

While US President Donald Trump has threatened he would pull out of a deal between Iran and world powers as a Saturday deadline nears, he has signaled he would be open to negotiation.

The difference in oil prices opinions between Tehran and Riyadh is nothing new: Iranian officials have been warning against too-high oil prices for a while just as Saudi officials have repeatedly argued that oil still has a way to go before its price begins hurting demand.

Even though some of the decline was due to unintended problems, the reality is that the market badly misjudged OPEC's resolve to erase the world of the oil glut.

Saudi Arabia is the OPEC member that wants higher prices as it prepares for the listing of state oil giant Aramco.

With global supply already on a downward slope, Iran sanctions could be the last straw to shift the market dynamic, said Leigh Goehring of Goehring & Rozencwajg Associates.




Goehring expects the oil market to lose at least several hundred thousands barrels a day if the US decides to end the Iran deal. Natural gas is under pressure as US production surges.

The increases came despite the addition of nine USA oil rigs in the week to May 4, bringing the count to a three-year high of 834, according to energy services firm Baker Hughes.

But Adam Rozencwajg of G&R suggests that shale-drilling productivity might be peaking.

Noticeably, a lot of this growth came from the transport sector with a surge in larger vehicle purchases as SUV and light trucks represented almost two-thirds of total US sales in 2017 up from 47 per cent in 2011, according to IEA data. "People thought US shale growth would flood the global market and close the supply-demand gap, but that hasn't happened". For investors seeking exposure to the sector, analysts see more appeal in energy equities than in the commodity itself.

Phil Flynn, the senior market analyst for the PRICE Futures Group in Chicago, said in a daily emailed newsletter the global energy market is sensitive to any shortages because the big surplus that dragged oil prices below $30 per barrel a little more than two years ago has been drained in part by a decision from the Organization of Petroleum Exporting Countries to limit production. "Instead, they are using free cash flow to return capital to shareholders via increased buybacks and dividends".

US gasoline and product prices will also rise. "Investors haven't had much interest in oil-related equities, but we think the time has come now".

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