Supply-side triple shock sends oil prices higher

Javier Stokes
May 27, 2018

Phil Flynn, the senior market analyst for the PRICE Futures Group in Chicago, said in a daily emailed newsletter the USA crackdown on Iran and Venezuela is adding a risk premium to the price of oil.

Oil prices recovered some ground Wednesday after a surprise jump in US crude inventories, which added another headwind to oil markets following suggestions that OPEC might increase production. But today I wanted to highlight technical factors rather than fundamentals as the chart of Brent looks quite interesting. Last week, it topped $80 for the first time since November 2014.

Higher oil prices are doubly helpful for Canadian producers, because they are priced in US dollars, while Canadian companies book most of their expenses in Canadian dollars.

Fawad Razaqzada is market analyst at and City Index brands of Gain Capital. "U.S. Secretary of State Pompeo demanded that Iran halt all uranium enrichment and give nuclear inspectors access to the entire country", ANZ said in a note.

Meanwhile, commercial USA crude inventories rose by 5.8 million barrels in the week to May 18, beating analyst expectations for a decrease of 1.6 million barrels, the Energy Information Administration (EIA) said on Wednesday.

Oil prices have gained almost 20 percent so far this year, with Brent briefly rising above $80, driven primarily by coordinated supply cuts by the Organization of the Petroleum Exporting Countries and partners including Russian Federation.

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While WTI was briefly at $72 US, Canadian oil companies have also seen their prices rise.

Brent crude prices were down US$0.15 at open on Thursday and sat at US$79.04.

Septembers ' contractual price on oil on the Shanghai global energy exchange (INE) on Friday have decreased on 1,1% - to 479,9 yuan per barrel.

Added to this, President Donald Trump's declaration of putting an end to the Iran nuclear deal and imposing sanctions raised fears of a further supply crunch and favored global oil prices.

OPEC and its partners chose to extend its production cuts till the end of 2018 in Vienna on November 30, as the oil cartel and its allies step up their attempt to end a three-year supply glut that has savaged crude prices and the global energy industry. Because most of the participating nations are already producing close to their maximum, additional supply would have to come from a relatively short list of nations, namely, Saudi Arabia, Russia, the UAE and Kuwait.

Crude finds support at $70.52 a barrel after losing more than $2 in the last two days.

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