Brent Crude Oil
The biggest unknown for the oil market now is the impact of US sanctions on Iran, which are being reimposed after US President Donald Trump abandoned an global nuclear accord with the country, the world's fifth-largest oil exporter.
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"The only reason why we're not seeing higher prices from here today is the strength of the USA dollar", said Tariq Zahir, managing member at Tyche Capital Advisors. Conservative estimates suggest that the country could lose several hundred thousand barrels per day over the course of 2018, but there are several massive threats to PDVSA's operations that could make that forecast look optimistic. "If that shortfall there coincides with a large shortfall in Iranian exports as the sanctions are implemented that potentially poses a challenge".
"A weakening dollar, strong economic growth and low oil price have all supported a tremendous recovery in oil demand over the last few years, clearing the oversupply in the market".
Oil inventories in the world's richest nations, the most transparent and easy to track, have now fallen 1 million barrels below the five-year average, the level targeted by the Organisation of the Petroleum Exporting Countries and its partners, as the group restrains crude output for a second year.
Surging prices were capped after China reported weaker-than-expected investment and retail sales in April and a drop in home sales, clouding its economic outlook even as policymakers try to navigate debt risks and defuse a heated trade dispute with the United States.
The "outlier", as has been the case for the past few years, is the USA tight oil industry, where investments rose by more than 42% y/y in 2017, to about $138 billion.
Tuesday's API crude oil stocks report came in at a surplus of 4.854 million barrels, up from the previous release of -1.850 million.
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A rapid decline in Venezuela's crude production has further roiled markets in recent months.
Describing Venezuela as being in "freefall", the IEA said its production collapse was significant. "Coupled with no signs of new supply coming on, demand remaining strong as well as the geopolitical turmoil in Iran and you have the conditions for this push up towards $80" a barrel.
Iran, which produces around 3.8 million bpd and is the Opec's third-largest supplier behind Saudi Arabia and Iraq, could face severe disruption to its exports.
However, EIA expects West Texas Intermediate (WTI) crude oil price to average $5/barrel lower than the Brent price this year.
Since a year ago, oil has been supported by a deal by the Organization of the Petroleum Exporting Countries, plus Russian Federation and other non-members, to cut output.
"Should a decision be taken to remove the cuts, only Saudi Arabia, the United Arab Emirates, Kuwait and Russian Federation are likely to be capable of a quick ramp up of substantial volumes".
Record output from the USA pushed non-Opec supplies up by 2.1 million bpd year-on-year to 59.4 million bpd.
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