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

Source U.S. Energy Information Administration Short Term Energy Outlook May 2018

Brent, the worldwide benchmark, rose as much as 1% at $79.47 per barrel around 8:30 a.m. ET.

US light crude closed 35 cents, or 0.5 percent, higher at $71.31 a barrel, also not far off the day's peak at $71.92, its highest since November 2014.

The bottleneck in North America likely contributed to a 4.9 million barrel rise in U.S. crude oil inventories, to 435.6 million barrels, that the American Petroleum Institute reported on Tuesday.

However, the tailwinds for crude oil now vastly outnumber the headwinds, so prices will likely continue upwards in the coming days, especially in light of the escalation in Israel following the move of the US embassy from Tel Aviv to Jerusalem that ignited protests in Gaza, prompting an immediate military response from the IDF.

Turmoil in the Middle East and USA trade sanctions against major oil producer Iran have recently supported crude.

Source U.S. Energy Information Administration Short Term Energy Outlook May 2018
Source U.S. Energy Information Administration Short Term Energy Outlook May 2018

The IEA said that the overall market balance was "continuing to tighten", and it lowered its estimate for 2018 global oil demand growth to 1.4 million barrels per day from its previous estimate of 1.5 million.

The United States has announced it will impose sanctions on Iran over its nuclear program, raising fears that markets will face shortages later this year when trade restrictions take effect.

Stronger oil prices are also spilling into other markets.

Refinery runs in March also jumped to a record as import quotas for the small independent refiners-the so-called "teapots"-were increased and refinery margins stayed healthy". With Japan and South Korea already indicating that they will aim to attain a waiver from the U.S. in order to continue buying Iranian crude, the impact of Trump's actions will rest on how far he goes in comparison with Obama's previous sanctions.

The Secretary-General, Organisation of the Petroleum Exporting Countries (OPEC), Mohammed Barkindo, attributed the rising oil prices to efforts by OPEC and non-OPEC countries to rebalance the market through production freeze. China's crude oil imports in the first quarter increased by 7 percent on the year to around 9.09 million bpd-a rise of nearly 595,000 bpd on average compared to Q1 2017, according to Reuters calculations.

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