Oil falls further on Chinese demand drop

Marcus Newton
June 10, 2018

In the previous round of sanctions against Tehran, in which the European Union had taken part, Iranian oil exports plummeted by more than half to below 1 million barrels per day.

In similar fashion, the metal for delivery in July contracts was trading higher by Rs 32, or 0.73 per cent to Rs 4,387 per barrel in 272 lots. The US requested Saudi Arabia to keep oil prices and supply stable after the imposition of sanctions on Iran.

One of the key features of oil markets recently has been the widening discount of US WTI crude versus Brent, which has nearly quadrupled since February to more than $11 per barrel, its steepest discount since 2015.

The surge in U.S. production has pulled down WTI into a discount versus Brent of more than $11 a barrel, its steepest since 2015.

OPEC will meet in Vienna on June 22 to decide whether the group and non-OPEC producers, including Russian Federation, should raise output to make up for any supply shortfall from Iran and Venezuela.

In announcing his decision, Trump also warned that the USA would impose the "highest level" of sanctions on Tehran.

"Nevertheless, growing prospects for an increase in production from the "OPEC Plus" and rising oil output from the US will cap price gains". "$80 is a temporary ceiling for oil until we hear from OPEC".

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The US has quietly pressed Saudi Arabia, the group's biggest member, and other producers to raise supply by about 1 million barrels a day, people familiar with the request said this month.

India's oil minister said his Saudi counterpart told him the kingdom was revisiting its policy of cutting production, which has supported prices.

If the partners in the production cut deal decide to raise production and if this move depresses oil prices, Iran and Venezuela will be two of the biggest losers from lower oil revenues, because they can't raise their respective production levels, also because of the USA sanctions.

Oil fell Wednesday after the Energy Information Administration reported an unexpected increase in U.S. crude inventories. USA production according to the latest report from the Department of Energy has increased to 10.8 million barrels per day.

Oil prices fell further on Friday as weakening demand in China and surging USA output weighed on markets despite supply woes in Venezuela and Iran on top of Opec's production cuts. The fact that they did not wait for the next Opec-Russian summit in Vienna on June 22 demonstrates the priority Moscow and Riyadh place to their new shift in oil policy.

"The continuing increase in crude oil production is weighing on the market, and quite significantly compared to this time a year ago", Andrew Lipow, president of Houston-based Lipow Oil Associates.

Other reports by MaliBehiribAe

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