Supply-Side Triple Shock Sends Oil Prices Higher
Forecasts of lower U.S. crude oil inventories, on top of fears of a lack of supply from Iran and Venezuela, pushed oil prices higher in early Tuesday trading.
Crude oil prices rallied early Monday after U.S. Secretary of State Mike Pompeo vowed to tighten the sanctions noose on Iran. Pompeo’s address, the first since he took office, followed a May 8 decision by U.S. President Donald Trump to pull out of the Iranian nuclear deal.
The price for Brent crude oil is up 5 percent since Trump’s announcement. Iran is a member of the Organization of Petroleum Exporting Countries and the decision means as much as 1 million barrels of oil per day could disappear from the global market.
A market surplus helped push oil prices below $30 per barrel two years ago. The surplus, meanwhile, meant the market had enough extra supply to navigate through periods of heightened geopolitical risk.
Analysis emailed from commodity pricing group S&P Global Platts, meanwhile, revealed expectations of a 1.7 million barrel drain on commercial crude oil inventories in the United States, showing the market is now moving toward a deficit.
The price for Brent crude oil was up 0.95 percent as of 9:17 a.m. EDT to $79.97 per barrel, making at least its second run on the psychological threshold of $80 per barrel since Trump’s decision on Iran. The price for West Texas Intermediate, the U.S. benchmark for the price of oil, was up 0.10 percent to $72.42 per barrel.
The situation was compounded Monday when the U.S. government tightened sanctions on Venezuela after Nicolas Maduro secured another six-year term as president of the OPEC nation. Sanctions have already pushed Venezuelan production to historic lows.
Phil Flynn, the senior market analyst for the PRICE Futures Group in Chicago, said in a daily emailed newsletter the U.S. crackdown on Iran and Venezuela is adding a risk premium to the price of oil.
“Venezuelan oil production will take another hit as capital in the country dries up,” he said. “OPEC is now suggesting that they may step up to the plate to replace their oil, but they are not in a hurry to do so.”
OPEC is in year two of an effort to drain the market surplus with coordinated production declines.
The market rally will be tested by inventory data from the American Petroleum Institute, which is published after trading closes Tuesday in the United States.
Courtesy : .upi.com
Photo : The Financial Express
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