prices soared in the second quarter as geopolitics weighed on supply, helping
to drain bulging inventories and promising continued strength for the crude
market in the months to come.
price of Brent crude, the international benchmark, climbed by 13% during the
quarter, temporarily topping $80 for the first time in over three years. By
contrast it gained by roughly 4% in the first quarter. West Texas Intermediate,
the U.S. standard, was up by 14.2% in the second quarter.
gains came as an agreement between the Organization of the Petroleum Exporting
Countries and other major producers capped their output while Venezuelan
production dwindled and bottlenecks in the U.S. kept some U.S. oil off the
market. More recently, oil has climbed as market participants anticipate
Iranian production being hit by the reimposition of U.S. sanctions. These
factors are likely to stay in place.
demand was strong amid robust global economic growth in the second quarter.
That has pushed analysts to revise their expectations for
international-benchmark oil prices this year.
is now expected to average $71 a barrel this year, compared with an estimate of
just over $70 a barrel in May, according to a poll of 12 investment banks
surveyed by The Wall Street Journal. The forecast for WTI remained unchanged at
nearly $66 a barrel, the poll showed.
traded at $79.44 a barrel on Friday and WTI traded at $74.15.
May, banks raised their estimates for both benchmarks by roughly $6 a barrel,
largely as a result of the escalating supply risks in Iran and Venezuela.
supply is likely to drive oil prices higher during 2018,” said Jason Gammel, an
oil analyst at Jefferies, one of the banks surveyed by the Journal.
revised forecast for Brent comes on the heels of a decision by OPEC and its
allies to begin ramping up production by as much as one million barrels a day
in July after more than a year of holding back output.
the cartel’s recent official semiannual gathering in Vienna, Saudi Arabia, the
de facto head of OPEC, and partner producer Russia pushed to start pumping more
oil, in an effort to put a cap on steadily rising prices and fill expected
supply gaps from producers like Iran.
and 10 producers outside the cartel, including Russia, agreed in late 2016 to
cut crude production by around 1.8 million barrels a day, or 2% of global
supply, as part of a coordinated plan to rein in a supply glut that had weighed
on crude prices since 2014.
the decision to reopen the taps has yet to halt oil’s climb. Prices have been
bolstered by supply outages in Canada, heightened U.S. pressure on Iran’s oil
industry and declining crude stockpiles in America.
among those factors was the U.S. government’s recent threat to sanction
countries that don’t reduce their imports of Iranian crude oil to “zero” by
Donald Trump last month pulled the U.S. out of a 2015 international agreement
to curb Iran’s nuclear program, setting the stage for the reimposition of
economic sanctions on the Islamic Republic that were already expected to hinder
its roughly 2.4 million barrels a day of oil exports.
U.S. pressure on OPEC member Iran raised the prospect that its oil flows could
be further restricted than many market observers had initially anticipated,
potentially by one million barrels a day, according to some analyst estimates.
significant future supply losses faced by Iran under U.S. sanctions, and supply
risks in Venezuela and Libya, the barrel math would suggest that oil
fundamentals still remain favorable for oil prices to rise over the next six
months despite the OPEC+ decision,” said Harry Tchilinguirian, senior oil
strategist at BNP Paribas, another bank surveyed by the Journal in June.
at Bank of America Merrill Lynch said that despite the OPEC-led plan to raise
output, “spare capacity is dwindling and the oil market should remain in
June, the International Energy Agency said commercial petroleum inventories in
the Organization for Economic Cooperation and Development—a group of
industrialized, oil-consuming nations that includes the U.S.—fell to 27 million
barrels below the average over the past five years, a key metric for assessing
the oil-market rebalancing.
on Wednesday the U.S. Energy Information Administration said U.S. crude
inventories fell by 9.9 million barrels in the previous week to stand at 416.6
million barrels, a much larger decline than analysts had expected.
ahead to 2019, banks expect oil prices to come down somewhat, with Brent
averaging more than $68 a barrel and WTI at around $63 a barrel, the poll
showed. The decline is expected to arrive as infrastructure bottlenecks in the
U.S. are resolved, allowing more U.S. crude to enter the market.
here for the original article from The Wall Street Journal.