Crude Whipsaws but is Headed Higher

WTI Crude Oil

The IEA said global oil demand would average 99.2 million bpd in 2018, although USA bank Goldman Sachs said consumption would cross 100 million bpd "this summer". "We are in a world where geopolitics are dominating the market again", Patrick Pouyanne said. "It would be extraordinary if such a large jump did not affect demand growth", it said.

Crude has rallied this month on concern that President Trump's decision to quit an worldwide accord with Iran and reimpose sanctions will strain global supplies just as markets are already tightening.

Even stronger prices could loom, the IEA said, as supplies from Iran take a hit following new sanctions on its oil from the U.S., which has withdrawn from the nuclear deal with the Opec country.

In China, the world's biggest oil importer, refinery runs rose almost 12 percent in April compared with the same month a year ago, to around 12.06 million barrels per day (bpd), marking the second-highest level on record on a daily basis, data showed on Tuesday.

Geopolitical concerns, tightening product inventories and robust demand would continue to provide support for prices, experts noted. As stockpiles of middle distillates near five-year lows, and demand for fuel booms, refineries are finding it hard to keep up with higher-than-expected consumption.

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"Though Iran is unlikely to give back all the production gains charted since the [Joint Comprehensive Plan of Action] nuclear deal removed sanctions in 2016, they are likely to see steady declines ahead, joining Venezuela in the ranks of OPEC members suffering from involuntary production losses", said Fraser. "As ever, the IEA stands ready to act if necessary to ensure markets remain well supplied".

Opec and other producers such as Russian Federation have restrained supplies in support of higher prices.

In its monthly report, 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.

Brokerage Marex Spectron said the surge in USA supplies was "strongly price-bearish", adding the economic outlook was also "firmly bearish" as "short-term credit conditions have worsened which. hasn't been priced correctly by the market".

The IEA noted that Iranian oil exports now total about 2.4 million barrels a day. "Among those risks, Iran continues to top the list, with questions remaining around the extent to which a return of US sanctions will limit Iranian oil production". The IEA acknowledged attention of market participants has shifted away from inventories to price volatility.

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