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

Casey Dawson
May 16, 2018

Futures in NY gained 0.2%. Dozens of Palestinians were killed in clashes with Israeli troops in Gaza after the USA opened an embassy in Jerusalem.

Markets have generally tightened as the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, have been withholding supplies since 2017 in order to push up oil prices.

It remains unclear how hard USA sanctions will hit Iran's oil industry. Investors are watching whether OPEC and its allies such as Russian Federation intend to end output cuts and increase production if renewed American measures restrict the Persian Gulf state's exports.

Since the accord was reached at the end of 2016, oil prices have climbed to their highest in almost four years to exceed $77 a barrel, up from $30 in early 2016.

"U.S. sanctions on Iran take center stage in the oil market", said Norbert Ruecker, head of macro and commodity at Julius Baer Group Ltd.in Zurich.

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USA light crude was 15 cents lower at $70.81 a barrel, also not far off its highest since November 2014, in a volatile session. Prices rose 26 cents to close at $70.96 on Monday. Total volume traded Tuesday was about 45% above the 100-day average.

Brent crude was up 20 cents at 77.32 dollars a barrel by 1315 GMT and U.S. light crude rose 10 cents to 70.80 dollars. Prices on Monday gained $1.11 to close at $78.23. The global benchmark crude traded at a $7.20 premium to West Texas Intermediate for delivery in the same month.

Futures for September delivery rose 1.6% to 472.8 yuan a barrel on the Shanghai International Energy Exchange.

OPEC figures published on Monday showed oil inventories in OECD industrialized nations in March fell to 9 million barrels above the five-year average, from 340 million barrels above the average in January 2017.

It seems that this time around, the statement was uttered in connection with the movement within OPEC to prolong the cuts indefinitely, which some say is driven by the desire to boost prices even further and thus improve the bottom line of many members' economies. Fifty-five Palestinians were killed in confrontations with Israeli troops Monday after tens of thousands converged on the Gaza Strip border to protest the U.S. embassy in Jerusalem.

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