API reports surprise rise in USA oil inventories

Front-month futures prices, at nearly $75 per barrel, are now trading close to the inflation-adjusted average for the last price cycle, which started in 1998 and finished in 2016.

The prospect of fresh sanctions on Tehran and disruption to the country’s oil flows helped push oil higher this month.

The West Texas Intermediate for June delivery fell 0.94 US dollar to settle at 67.70 dollars a barrel on the New York Mercantile Exchange, while Brent crude for June delivery lost 0.85 dollar to close at 73.86 dollars a barrel on the London ICE Futures Exchange.

Before slipping, Brent hit its highest since 27 November 2014, which is the day Opec decided it would not curb global output. “Bets on rising crude prices are close to a near-record high”, PVM Oil Associates strategist Stephen Brennock said.

Oil began recovering in 2016 as Opec discussed a return to market management with the help of Russian Federation and other non-members. Trump could put pressure on Saudi Arabia and its other allies in OPEC to publically commit to ending the output cuts deal at the end of the year or sooner, although given Saudi Arabia’s commitment to the deal, it is unlikely that they would be willing to do this. These prices could shoot through the roof after May 12.

By May 12, the United States must decide whether to leave the nuclear deal with Iran and reintroduce sanctions against OPEC’s third-largest oil producer, which will tighten global supplies. He said the danger now facing the market is that Opec overshoots on tightening the market, which could exacerbate the backwardation in prices, prolong the rally in near-term prices and ultimately erode demand. The region is the biggest oil-consumer right now. Currently, nationwide gasoline prices average $2.76 per gallon, and will likely rise in the coming weeks ahead of Memorial Day weekend when summer driving season begins.

So on every indicator, from spot prices and spreads to consumption, production and inventories, the oil market is now well into the boom phase of the cycle. “I think we might see about half of the states get to $3”, said Tom Kloza, global energy analyst at Oil Price Information Service.

Last week, President Trump had accused OPEC of artificially inflating oil prices.

Last week, the API reported a draw of 1.047 million barrels of crude oil.

Oil will continue growing in price, and even Donald Trump’s incompetent tweets are not going to change this trend, expert Igor Yushkov believes. Investors kept hoping prices would stabilize, but that didn’t happen.

“If this current oil price level is sustained for at least the next six months, we can expect an even better outlook for O&G service providers as Petronas will make some upward revision to their current projects”, he added.

The deal bans Iran’s nuclear program in exchange for the removal of strict sanctions that severely limits Iran’s ability to sell oil. However, if these prices keep rising – which looks like a strong possibility – then it could have a detrimental effect and choke economic growth.