Oil prices mixed as investors weigh soaring US output vs. rising demand

oil prices
Oil prices were up slightly on Thursday as investors considered rising US crude output against the possibility of US sanctions on Iran, tanking Venezuelan output and strong demand.  Encana photo.

Oil prices were mixed on Thursday as investors considered rising US crude output against the possibility of US sanctions on Iran, tanking Venezuelan output and strong demand.  Encana photo.

Recent oil prices rally “overdone”: Some analysts

Oil prices were mixed on Thursday, with Brent rising slightly and US WTI nodding between slight gains and losses, as investors consider possible US sanctions against Iran, rising demand and soaring US output.

By 2:27 p.m., EDT, Brent crude futures were up 49 cents to $73.72/barrel and US West Texas Intermediate rose 9 cents to $68.14/barrel.  The Canadian Crude Index was down 25 cents to $49.85.

“The turnaround from yesterday seems to be the re-pricing of geopolitical risk, especially of the United States potentially pulling out from the Iranian nuclear agreement,” Gene McGillian, manager of market research at Tradition Energy told Reuters.

According to a top advisor to Iran’s supreme leader, Tehran will not accept changes of any kind to the nuclear deal.  This comes at a time when Western signatories are working on a new agreement, hoping to convince US President Donald Trump to continue the accord.

“If Trump exits the deal, Iran will surely pull out of it,” the official told Reuters.

On Wednesday, French President Emmanuel Macron said he believes Trump will not renew the sanctions relief and will pull out of the 2015 agreement signed by former President Barack Obama.

Trump set a deadline of May 12 for Congress and European allies to “fix” the current deal.  Should the US pull out of the agreement, Iranian crude exports will likely be reduced.

Oil prices have risen about 6 per cent in the last four weeks due to anticipation that Trump will abandon the pact.

“The rally seems to be intact and is looking for the next spark to push it higher. That spark could come from reinstituting sanctions. But not only is there the possibility of sanctions on Iran, but there’s also the possibility of Venezuelan and Russian sanctions,” Tradition Energy’s McGillian told Reuters.

In Venezuela, crude production is down about 1 million barrels per day (b/d), from 2.5 million b/d to 1.5 million b/d, due to political and economic upheaval in the South American country.

Earlier in the month, the European Union said it may impose further sanctions against Venezuela if it determines democracy is being undermined.

As well, Russia is considering retaliatory measures against the US for sanctions imposed by the Trump administration on Rusal, the world’s second largest aluminium company.  Reuters’ sources say Moscow is hoping the EU can persuade the Trump government to ease restrictions against the company.

Another factor underpinning oil prices is rising demand from Asia, with main buyers hitting record purchases this month.

China is ahead of the pack.  By the end of April, China will have imported over 9 million b/d of crude.  This is the most ever imported and accounts for nearly 10 per cent of global consumption.

Soaring US production continues to tame oil prices.  According to the US Energy Information Administration, US crude production rose by 46,000 b/d to 10.59 million b/d last week.

As a result, US crude is selling at a deep discount to Brent, about $6/barrel under the global benchmark.

The EIA reports US crude exports have risen to record highs of over 2 million b/d.  With high US production and exports on the rise, some analysts say the 20 per cent rise in Brent prices since February is beginning to look overdone.

“The market does look a little toppish,” Greg McKenna, chief market strategist at futures brokerage AxiTrader told Reuters.

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