Oil prices fall as economic concerns counter tightening supplies

Fredrick Soto
September 19, 2018

Oil has climbed over the past month, with Brent in London briefly breaking past $80 a barrel, as the impending USA sanctions on Iran start removing barrels from markets, and shrinking American inventories combined with slowing production growth raise fears over a global supply crunch.

Brent crude oil fell US$1.56, or 2 per cent, to settle at US$78.18 per barrel.

Crude Oil futures in NY climbed 2.5%, while gasoline futures popped higher by 2.8% Tuesday.

Brent crude futures climbed 30 cents, or 0.4 per cent, to $79.36 a barrel. It's unclear how quickly OPEC's spare capacity, which stands at about 2.7 million barrels a day, can be activated, it said.

"Oil prices jumped overnight as American Petroleum Institute inventory data showed a large drawdown in inventories", said William O'Loughlin of Australia's Rivkin Securities.

Should markets overheat and prices spike, however, Novak said Russian Federation could increase its output.

Outside the United States, markets focused on USA sanctions against Iran, which from November will target its oil sector.

The deliberate spike in production was prompted by concerns about global supply and US sanctions against Iran that go into effect in November. The move was prompted by expectations that Washington's sanctions on Iran will tighten global oil markets. "The situation should be closely watched, the right decisions should be taken", he said.

Russian energy minister Alexander Novak on Wednesday warned of the impact the US sanctions against Iran.

Each of those countries usually imports between 500 to 700,000 barrels of Iranian oil per month, a number which may be reduced even though they aren't expected to completely cut ties with Iran.

Despite this, the short-term outlook for oil markets is for tighter supply.

In a monthly report, the Organization of the Petroleum Exporting Countries said world oil demand next year would rise by 1.41 million barrels a day, 20,000 barrels less than last month and the second consecutive reduction in the forecast. Further, Russia's Novak has reportedly said that his country has potential to raise output. World ask will hit a excessive of a hundred.three million bpd in the closing quarter of this twelve months, earlier than moderating to Ninety 9.three million bpd in the first quarter of subsequent twelve months, the company said.

"The Midwest accounted for the lion's share of the inventory drop, while lower crude imports, higher crude exports and higher refinery runs on the Gulf Coast also help explain away a good part of today's crude draw", he said.

Continued underinvestment in Mexico's refineries and an odd discrepancy between the type of crude oil available locally and the kind of oil which Mexico's refineries were created to process has led to low utilization rates.

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