Thursday marked another milestone for Brent prices as Brent crude crept closer to $80 per barrel mark as suppliers tightened output. Brent prices are currently at their highest levels over the last four years. By the close of the day Thursday, crude futures for Brent rose 32 cents to $76.60 per barrel. By the weekend, the price had jumped to $80 per barrel.
According to reports, United States West Texas Intermediate (WTI) crude futures were up to 29 per cent at $71.78 per barrel. That was not far off Tuesday’s $71.92 a barrel, also a level not seen since November 2014. The prospects of a sharp drop in Iranian oil exports in the coming months due to renewed US sanctions following the decision of President Donald Trump to withdraw from an international nuclear deal with Tehran is said to be behind the spike in oil prices in recent weeks.
Just last Wednesday, France’s Total warned that it may at some point abandon a multi-billion-dollar gas project in Iran if it could not secure a waiver from US sanctions, signaling doubts on European-led efforts to salvage the nuclear deal.
Analysts believe oil stocks are expected to drop further as peak summer driving season nears, offsetting increases in US shale output. They predict that even in the face of rising US shale production, questions still remain on the sustainability of inventory levels through 2018.
Recent demand for oil in Asia is at record highs and with rising prices its crude consumption could reach $1 trillion this year, about twice what it paid during the market lull of 2015/2016. The International Energy Agency (IEA) said global oil demand would average 99.2 million barrels per day (bpd) in 2018; this despite US bank Goldman Sachs’ projections that consumption would cross 100 million bpd this summer.
According to reports, leading production increases in the United States, where crude output has soared by 27 per cent in the last two years, to a record 10.72 million bpd, is putting the United States within the reach of top producer Russia’s 11 million bpd.
Goldman Sachs however said that even with a slowdown in demand and soaring US output, global oil markets would remain tight. The bank believes that US shale alone cannot solve the oil supply problems happening at the moment. The bank also argues that US oil outputs would be insufficient to offset production losses from Iran, Venezuela and Angola.
The bank also holds the view that a tight market is leaving OPEC with a good space to exit its production cuts without any significant impact on prices.