Oil markets firm as Brent edges ever closer to $80 per barrel on tight market

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  • Oil prices firmed on Thursday, with Brent crude creeping ever closer to $80 per barrel.
  • U.S. bank Morgan Stanley said it had raised its Brent price forecast to $90 per barrel by 2020.
  • Not all pointed to a tighter market, however.

A pump jack and pipes at an oil field near Bakersfield, California.

Lucy Nicholson | Reuters
A pump jack and pipes at an oil field near Bakersfield, California.

Oil prices firmed on Thursday, with Brent crude creeping ever closer to $80 per barrel, a level it has not seen since November 2014, as supplies tighten while demand remains strong.

Brent crude futures were at $79.32 per barrel at 0027 GMT, up 4 cents from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $71.68 a barrel, up 19 cents, or 0.3 percent, from their last settlement.

ANZ bank said on Thursday that Brent was “now threatening to break through $80 per barrel … (as) geopolitical risks continue to support prices, (and) an unexpected fall in inventories in the U.S. got investors excited yesterday.”

U.S. crude inventories dropped by 1.4 million barrels in the week to May 11, to 432.34 million barrels.

ANZ said the falling U.S. inventories were “raising concerns of tight markets heading into the U.S. driving season,” during which demand typically rises.

Looking beyond seasonal changes, U.S. bank Morgan Stanley said it had raised its Brent price forecast to $90 per barrel by 2020, due to a steady increase in demand.

Everything bullish?

Not all pointed to a tighter market, however.

The International Energy Agency (IEA) said on Wednesday that it had lowered its global oil demand growth forecast for 2018 from 1.5 million barrels per day (bpd) to 1.4 million bpd.

The IEA said global oil demand would average 99.2 million bpd in 2018.

And although supplies currently only stand at 98 million bpd due to supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC), the IEA said that “strong non-OPEC growth … will grow by 1.87 million bpd in 2018.”

Leading production increases is the United States, where crude output has soared by 27 percent in the last two years, to a record 10.72 million bpd.

That puts the United States within reach of top producer Russia, which pumpsaround 11 million bpd.

As a result of its surging production, U.S. crude is increasingly appearing on global markets as exports.

Commodity brokerage Marex Spectron said that the surge in U.S. supplies was a “strongly price-bearish development.”

It said the economic outlook was also “firmly bearish” as “short-term credit conditions have worsened which … hasn’t been priced correctly by the market”.

The brokerage also said that U.S. energy intensity “continues to decrease which is never good news for the future consumption of oil”.

Oil dips, but concerns persist about Iran supplies

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  • Oil prices declined 0.2 percent on Friday morning Asia time, with U.S. crude trading at $68.07 and global benchmark Brent at $74.61 a barrel.
  • Markets were pricing in potential supply disruptions, according to analysts at Australia’s ANZ Bank.
  • That is because President Donald Trump will decide by May 12 whether the U.S. would restore sanctions on Iran that were lifted after an agreement over its disputed nuclear program.
  • If sanctions are restored, it would likely result in a reduction of Iranian oil exports.

Oil prices edged lower on Friday, but Brent largely held gains from the previous session amid concerns that Iran may face renewed sanctions, choking off supply.

Global benchmark Brent crude futures were down 13 cents, or 0.2 percent, at $74.61 a barrel by 0050 GMT, after rising 1 percent on Thursday U.S. West Texas Intermediate (WTI) crude fell 12 cents, or 0.2 percent, to $68.07 a barrel. The contract gained 0.2 percent the previous session.

Brent is heading for a third week of gains, up around 0.7 percent, while WTI faces a small weekly decline.

“Markets continued to price in potential disruptions to world oil supplies if the United States withdraws from the 2015 Nuclear Accord with Iran,” ANZ Bank said in a note.

U.S. President Donald Trump will decide by May 12 whether to restore sanctions on Iran that were lifted after an agreement over its disputed nuclear program, which would probably result in a reduction of Iranian oil exports.

Brent has gained more than 6 percent this month on expectations the United States will renew sanctions.

Concerns about market tightness have also been fueled by the deteriorating situation in Venezuela that has led to a 40 percent decline in crude output in the country in two years.

Nonetheless, further gains have been capped by rising U.S. production as shale drillers ramp up activity in tandem with the rise in oil prices.

Surging U.S. production, which hit 10.59 million bpd last week, has encouraged record-high U.S. exports.