World

Oil dips on signs of ample supply despite OPEC cuts, Iran sanctions

Oil dips on signs of ample supply despite OPEC cuts, Iran sanctions

Oil prices were mixed Tuesday, with the US benchmark pulling back after hitting multiyear highs, even as turmoil in the Middle East continued to boost the global benchmark.

Spot crude oil cargo prices are at their steepest discounts to futures prices in years as sellers are struggling to find buyers for West African, Russian and Kazakh cargoes, while pipeline bottlenecks trap supply in west Texas and Canada.

Elsewhere, supply concerns have been mounting over the last week after President Donald Trump the United States pulled out of the Iran nuclear deal - a move that reimposes sanctions on Iranian barrels.

"The rapidly growing US shale oil production is now helping to plug the supply gap to only a limited extent because pipeline bottlenecks are preventing some of the oil from reaching the refineries and export terminals on the US Gulf Coast", Commerzbank analysts said in a note.

With renewed US sanctions looming against OPEC-member Iran and oil demand strong, analysts said crude markets will likely remain tight for much of the year.

For the January-April period of this year, South Korean brought in 48.29 million tonnes of crude, or 2.95 million bpd, up 0.2 percent from 48.18 million tonnes in the same period in 2017.

The data poses worries that near-record high refinery runs may be short-lived.

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At the same time, China's domestic crude oil production has been languishing near June 2011 lows in the first quarter this year, prompting higher imports to meet growing demand.

While a huge accretion to Excess Crude Account is expected, public finance analysts also said the current situation will impact positively on the implementation of Nigeria's 2018 budget which was benchmarked on $45 per barrel and the production of 2.3 million barrels per day.

It has been declining since December after reaching as high as $7 per barrel as US exports increased, however, as it is becoming apparently clear the there is a supply/demand mismatch in North America, the spread has reversed course.

On the supply side, Iran's impact on the global oil market has yet to be quantified or seen.

As a supply loss in collapsing Venezuela and a potential decline in Iranian oil exports push oil prices up, the pace of demand growth in China could drive global demand growth higher.

Oil & Gas names performed best on Tuesday as traders continued pushing crude oil futures higher in the face of simmering geopolitical tensions. Most cartel member governments are eager to boost oil prices since their economies are highly dependent on oil revenues.

Energy and finance will follow, with companies facing punishment if they continue to do business with Iran, after US President Donald Trump withdrew from a landmark nuclear deal with Tehran.


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