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Oil prices firm on OPEC cuts, strong demand and looming Iran sanctions

Crude prices have received broad support from voluntary supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) aimed at tightening the market

Reuters  |  Singapore 

Crude oil

prices held firm on Friday on strong demand, ongoing supply cuts led by producer cartel OPEC and looming U.S. sanctions against major crude exporter

But markets remained below multi-year highs from the previous day as surging output from the is expected to offset at least some of the shortfalls.

Brent crude futures were at $79.55 per barrel at 0651 GMT, up 25 cents, or 0.3 percent, from their last close. Brent broke through $80 for the first time since November 2014 on Thursday.

U.S. Intermediate (WTI) crude futures were at $71.65 a barrel, up 16 cents, or 0.2 percent, from their last settlement.

Crude prices have received broad support from voluntary supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) aimed at tightening the market.

"Global inventories are approaching long-run averages, suggesting that the coordinated OPEC/non-OPEC supply cuts have been successful," said Jack Allardyce, and gas research analyst at

Beyond OPEC's cuts, strong demand as well as falling output from and a U.S. announcement earlier this month to renew sanctions against OPEC-member helped push up Brent by 20 percent since the start of the year.

U.S. Jefferies said sanctions against could remove more than 1 million barrels per day (bpd) from the market.

Britain's said on Friday that it expected average prices of $70 per barrel Brent for this year and of $65 a barrel for 2019, up from estimates of $63 and $60 per barrel previously.

With crude prices at levels not seen since late 2014, Allardyce warned the high fuel costs could start crimping consumption.

At $80 per barrel, Asia's thirst for costs the region a whopping $1 trillion a year, more than twice what it was in 2015/2016, the two years prior to the OPEC-cuts which started in 2017.

"Higher due to tighter physical markets and geopolitical tensions could weigh significantly on the macro outlook for emerging market countries," Barclays said.

LONGER-TERM

The crude forward curve is in firm backwardation, a structure that suggests a tight market as prices for immediate delivery are higher than those for later dispatch.

Front-month Brent prices are now almost $2.60 per barrel more expensive than those for delivery in December.

"Longer-dated (crude) futures ... remain in backwardation, driven by confidence in indefatigable U.S. shale producers," U.S. firm said in a note, although it warned that strong demand as well as looming disruptions due to renewed U.S. sanctions against Iran and falling output in could soon start lifting the crude forward curve too.

U.S. has soared by more than a quarter in the last two years, to a record 10.72 million bpd.

As a result of its surging production, U.S. crude is increasingly appearing on global markets as exports.

First Published: Sat, May 19 2018. 01:18 IST
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