Published: Wed, May 16, 2018
Global | By Craig Ferguson

Oil dips on signs of ample supply despite OPEC cuts, Iran sanctions

Oil dips on signs of ample supply despite OPEC cuts, Iran sanctions

Both oil futures contracts hit their highest since November 2014 last week at 78 dollars and 71.89 dollars a barrel respectively, as markets anticipated a sharp fall in Iranian crude supply once U.S. sanctions bite later this year.

Brent for July settlement fell 2 cents to $78.21 a barrel on the London-based ICE Futures Europe exchange.

Brent crude futures, the global benchmark for oil prices, were at $78.37 per barrel at 0028 GMT, up 14 cents from their last close and not far off a three-and-a-half year high of $78.53 a barrel reached the previous session. High oil prices and low finding cost in the region which has relatively shallow wells help drive exploration in the farm belt where an average well produces 40-50 barrels-a-day over a 15-20 year life span.

The United States last week withdrew from an global nuclear accord with Iran and announced renewed sanctions against the country.

U.S. President Donald Trump announced the dissolution of the nuclear deal with Iran and promised to impose tough sanctions against Tehran.

China, France, Russia, Britain, Germany and Iran all remain in the nuclear accord that placed controls on Iran's nuclear programme and led to a relaxation of economic sanctions against Iran and companies doing business there.

The bottleneck in North America likely contributed to a 4.9 million barrel rise in US crude oil inventories, to 435.6 million barrels, that the private American Petroleum Institute reported on Tuesday.

World oil prices are rising against the backdrop of the OPEC May report on oil reserves and the persistence of concerns about the level of production in Iran. American measures could cut the Persian Gulf nation's crude exports, and traders are watching whether OPEC and its allies will end their agreement to curb supply and increase production instead to fill in the gap. "This time around, we expect much less of an impact".

"We expect the EIA report to display bearish results amidst higher rig counts and production levels in the USA", said Singapore-based brokerage Phillip Futures.

However, experts are of opinion that the market may get some clarity and things may ease out a bit after a review meeting in June by Organisation of Petroleum Exporting Countries (Opec) and non-Opec in which they may take the decision whether to continue with cut in oil production as was pledged earlier or pump out more to make up for any shortage.

On the other hand, US production is growing at a pace that made traders hesitate last week after Baker Hughes reported yet another increase in drilling rigs.

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