Global oil demand may suffer as crude nears $80: IEA

Galtero Lara
May 17, 2018

Markets are set to tighten further as output sinks in Venezuela and the USA re-imposes sanctions on Iran.

The IEA is anxious that we will see demand destruction because of higher oil prices.

"During the meeting, Mr. Khoshrou conveyed Mr. Zarif's message that Iran hopes China will maintain the levels of imports", said one person briefed on the meetings.

The International Energy Agency might see its "demand destruction", but only if it is caused by a geopolitical or weather premium spike. U.S. WTI futures were also up, gaining 0.36 percent to trade at $71.75 per barrel.

Physical crude markets are sagging under the weight of unsold barrels of oil, while the 50% jump in price of crude in the a year ago is encouraging major companies such as ExxonMobil, Royal Dutch Shell and Chevron, to raise production.

However, sometimes slogans can become an embarrassment as Drill, Baby, Drill turned to Spill, Baby, Spill following the 2010 Deepwater Horizon oil spill at a British Petroleum offshore drilling rig in the Gulf of Mexico.

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Taking out $71.95 then turning lower for the session will put the market in a position to form a potentially bearish closing price reversal top.

Venezuela's situation grows increasingly worrying and the expected drop in production from Iran means that prices are expected to reach four-year highs once again. "In Venezuela, the pace of decline of oil production is accelerating and by the end of this year, output could fall by several hundred thousand barrels a day".

Even at $80 per barrel, the costs of oil are huge, with Asia's consumption costing $1 trillion a year, twice as much as during the price lull of 2015/2016. The reason why this irks me is that many people look to this forecast to make designs about investing and their past doom and gloom about demand probably led to less energy investment that was needed to feed growing global oil demand. The call on OPEC crude and stockpiles will average around 32.25 million barrels a day for the remainder of 2018, about 600,000 higher than April output. Although the group said its crude output inched up in the previous month, investors interpreted the minimal increase as a sign of OPEC's continued commitment to rebalancing the market, especially from its de facto leader Saudi Arabia.

The International Energy Agency on Wednesday warned global demand is likely to moderate this year, as the price of crude nears $80/Bbl and many importing nations no longer offer consumers generous fuel subsidies.

This morning's EIA inventories report came in at -1.404 million barrels, above projections of -0.763 million. Tehran is mounting a last-ditch effort to save a 2015 nuclear deal that Washington has abandoned, with plans to impose unilateral sanctions including strict curbs on Iran's oil exports.

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