World's Oil Cushion Could Be Stretched To The Limit, IEA Warns

Lloyd Doyle
July 16, 2018

Finally, probably providing the strongest support after the steep drop in prices were the comments from the International Energy Agency (IEA).

Brent crude fell $5.46, or 6.9 per cent, to settle at $73.40 a barrel.

It is heading for a weekly decline of almost 5 percent. Furthermore, some traders are anxious that China could eventually impose a tariff on imported US crude oil.

"The scope of today's sell-off is unequivocally a speculative washout", said Saucer. With the United States' decision to withdraw from the Iran nuclear deal fueling speculation of tighter global supply, WTI Crude jumped to a yearly high above $72.80 in May.

"We think that WTI would not have to advance much further before the U.S. Strategic Petroleum Reserve (SPR) is brought into play", Standard Chartered analysts wrote in a recent note.

Fears of a slowdown in the global economy and a decline in demand for commodity assets have led to a decline in the Bloomberg commodity index to 1.5-year lows, while the cost of copper, which is attributed to outpacing indicators of economic growth, has fallen to the lowest levels over the past 2 years.

OPEC, Russia and a number of other producer nations have been working together since January 2017 to end a period of oversupply that saw oil prices drop to 12-year lows in 2016.

Especially, the market weighed concerns over resurgent Libyan supply. Depending on its size and timing, an oil sale might leave the market unmoved, or have a real, if fleeting, impact on prices. US crude exports dipped, but stayed near record highs.

It revised its 2018 demand-growth outlook to 1.2 million barrels per day (bpd) from 1.4 million previously, though its 2019 forecast edged up a touch to 1.1 million bpd from 1 million.

In its monthly Oil Markets Report, IEA said that there were already "very welcome" signs that output from leading producers had been boosted and may reach a record. WTI plunged 5 per cent to just above US$70 a barrel on concerns that an escalating trade war between the USA and China will threaten global economic growth and as Libyan crude exports increased.

Prices weakened earlier in the week after OPEC member Libya reopened major eastern oil ports and U.S. Secretary of State Mike Pompeo said Washington would consider granting waivers to some of Iran's crude buyers. U.S. stocks fell by 12.6 million-barrel for the week ended July 6. Speculations involving U.S. pressure on Russian Federation for extending its oil production also support the downtrend.

Investors continue to assess future prospects for supply and demand in the market, taking into account the decisions made by OPEC + and the risks of reducing supplies from Venezuela and Iran.

During the session, CME Group said a technical issue impacted connectivity for some customers.

Other reports by Iphone Fresh

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