Oil sticking to high points, WTI getting comfortable around $71

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

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

Oil prices fell on Wednesday, weighed down by ample supplies despite ongoing output cuts by producer cartel OPEC and looming United States sanctions against major crude exporter Iran. West Texas Intermediate was up 0.86% to $71.89 a barrel.

The price spread between USA benchmark WTI and Brent has widened to more than $7 a barrel.

USA light crude was 26 cents lower at $70.69 a barrel, also not far off its highest since November 2014. "Brent is pricing in the idea that all the risk to supplies is overseas - there's a concern that all the supplies that are tight in Europe are only going to get tighter".

The Paris-based IEA cut its forecast for global demand growth to 1.4 million barrels per day for 2018, from a previous estimate of 1.5 million bpd.

The tightening market has all but eliminated a global supply overhang which depressed crude prices between late 2014 and early 2017.

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". High oil prices and low finding cost in the region which has relatively shallow wells help drive exploration in the farm belt where an average well produces 40-50 barrels-a-day over a 15-20 year life span.

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

Additionally, the market retreated as the U.S. Dollar strengthened against other currencies to the highest since December.

Still, "we don't expect China to reduce its imports of crude from Iran given their long-term signed contracts and the ability to pay in yuan", said Abhishek Deshpande, the head of oil market research & strategy at J. P. Morgan.

OPEC, for its part, estimated that the excess oil inventories in the OECD had shrunk to just 9 million barrels.

In a monthly report issued Monday (https://www.eia.gov/petroleum/drilling/#tabs-summary-2), the Energy Information Administration said crude-oil production from seven major US shale plays is expected to see a climb of 144,000 barrels a day in June to 7.178 million barrels a day.

After the plans for the U.S. to pull out of the Iran nuclear deal became known, oil prices surged over the uncertainty of what would happen to Iran's oil industry if the USA reimposed sanctions, limiting Iran's production.

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