Published: Fri, May 18, 2018
Worldwide | By Jermaine Blake

Oil rallies but further upside looks limited for now

Oil rallies but further upside looks limited for now

Markets have been reacting to the prospect of a sharp drop in Iranian oil exports after the USA decision on the deal.

Still, Goldman Sachs Group Inc. said OPEC won't proactively replace the lost barrels, given its current narrative that the market isn't fully rebalanced. "We recommend not 'riding this one out'".

In its monthly report, the Paris-based IEA cut its forecast for global demand growth to 1.4 million barrels per day for 2018, from a previous estimate of 1.5 million bpd.

The commercial question is also hard to answer, for a simpler reason: The real extent of sanctions enforcement will not be clear until the late stages of the six-month "wind-down period" provided by the new USA regulations for businesses to disengage from Iran.

Continuing trades with Iran could potentially sour relations between China and the USA, which has been embracing increasingly protectionist trade policies under President Donald Trump. They are usually marked by production that's in excess of demand, just as we witnessed a few years ago with the boom of USA shale oil and Saudi Arabia's response.

"Demand at the start of the year was supported by cold weather in Europe and the United States, the start-up of new petrochemical capacity in the USA and a solid economic background", the IEA said.

U.S. officials have warned that new financial penalties could be extended to Western companies investing in Iran.

Oil's advance to $80 brings it to the level that OPEC's biggest member, Saudi Arabia, is reportedly seeking to cover the cost of weighty domestic spending commitments.

Opec and other producers such as Russian Federation have restrained supplies in support of higher prices. Steady refining margins and backlog cargoes to some independent refiners contributed to the record import volumes.

"On balance, the report is tending more to the negative side".

The prices have surged to the highest level since last three years.

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The upward pressure intensified following the US' decision to withdraw from the Iran deal.

While concerns over oil use have resurfaced with a recent "soft patch" in non-U.S. economic data and dollar strength, consumption has remained robust, according to Goldman.

In the short term, crude's strong gains may filter through the downstream petrochemical markets, ICIS aromatics analyst Jenny Yi said.

Further supporting prices, Royal Dutch Shell (RDSa.L) on Thursday said it was halting crude exports from a major Nigerian pipeline.

"We rallied as the day went on", said Gene McGillian, manager of market research at Tradition in Stamford.

"Let's see what happens from here", said a source in the UAE. This payment was made to designated branch of UCO Bank. "[It] will result in shortage of [base oil] cargo".

Global demand will cross 100 million barrels a day this summer, the bank said, creating a 1 million barrel-a-day deficit without a response from OPEC and Russian Federation, which are still persisting with output cuts that were aimed at shrinking a global glut.

"We can probably expect further devaluation of currency and panic in the market". "I wouldn't be surprised to see $100 per barrel in the coming months", he said in Washington Thursday. The US sanctions will target critical sectors of Iran's economy, such as its energy, petrochemical and financial sectors.

"And on top of it, you have the announcement on Iran, which is pushing the price up", said Pouyanne. "But considering [the] effects needs more time".

However, while the United States has left the Joint Comprehensive Plan of Action (JCPOA) agreement, fellow signatories, the UK, Germany, France, Russia and China, have assured that they will stick to the agreement. "These pipeline bottlenecks are now beginning to constrain USA shale supply".

In a televised speech, Trump announced the exit, adding he would not sign the waiver of nuke-related sanctions against Iran. European companies had said they would stand by the 2015 worldwide nuclear agreement that saw sanctions against Iran eased in return for Tehran curbing its nuclear program.

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