USA crude exports average record high 2.566 million b/d in past week

Oil's Rough Ride Back to $80/b

Oil's Rough Ride Back to $80/b

Oil prices fell on Wednesday, weighed down by ample supplies despite ongoing output cuts by producer cartel OPEC and looming USA sanctions against major crude exporter Iran.

U.S. West Texas Intermediate (WTI) crude futures were up 41 cents at $71.90 after also hitting their highest since November 2014, at $72.30 a barrel.

It remains to be seen whether major oil producers like Saudi Arabia and Russian Federation will step into the breach to stop prices soaring after an expected dip in Iranian supply, a top analyst told CNBC on Tuesday.

Physical crude markets are sagging under the weight of unsold barrels of oil, while the 50 percent rise in oil prices in the past year is encouraging major companies such as ExxonMobil, Royal Dutch Shell, Chevron, BP and Total to increase output.

"Germany has said it will protect its companies from USA sanctions, Iran has said French oil giant Total has yet to pull out of its fields and all the while it seems the Chinese are ready to fill the void created by the U.S", said Greg McKenna, chief market strategist at AxiTrader.

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Renewed U.S. sanctions on Iran that could seriously hamper the country's oil exports, along with involuntary output declines in big producers such as Venezuela, Mexico and Angola have contributed to the bounce in the price.

Global inventories of crude oil and refined products dropped sharply in recent months owing to robust demand and OPEC-led production cuts.

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.

In addition, crude exports from the USA have the capacity to increase as higher prices provide incentives to Shale producers to drill more wells.

The Organization of the Petroleum Exporting Countries reduced its forecast for global oil production in its most recent report.

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The IEA, which advises Western governments on energy policy, expects non-Opec supply to rise by 1.87 million bpd in 2018, up from a previous forecast of 1.8 million bpd. WTI's discount to Brent was as much as $7.28, its widest since December 12 on surging US output. "It would be extraordinary if such a large jump did not affect demand growth". As a result, oil prices have gradually risen during the period.

While it's "too soon to say what will happen this time", the agency said, Iran's fellow OPEC members could fill the gap because their pact to restrain supply leaves them with spare production capacity.

Despite these downward forces, the market retains support from OPEC and other producers' production cuts and USA sanctions on Iran. China's crude oil imports in the first quarter increased by 7 percent on the year to around 9.09 million bpd-a rise of nearly 595,000 bpd on average compared to Q1 2017, according to Reuters calculations.

USA crude stockpiles slipped for a second week as the summer driving season approaches, government data showed yesterday.

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