Oil near November 2014 highs firm as markets tighten amid OPEC cuts

Oil near November 2014 highs firm as markets tighten amid OPEC cuts

Oil prices rose to fresh multi-year highs Tuesday morning after OPEC said it cut supply more than expected and as markets poised for sanctions on Iran.

The upcoming restored U.S. limits against OPEC-member Iran and robust demand for oil are what now keeping prices well supported, according to analysts.

While all eyes are riveted on Iran and the Middle East, the pace of Chinese oil demand growth could be the most underappreciated story in oil markets right now, Bloomberg Opinion columnist David Fickling writes.

Once the sanctions are reinstated later this year, traders expect a massive decline from 200,000 to about 1 million barrels per day (bpd) in Iran's oil exports, which may put the already squeezed crude markets at risk of becoming undersupply.

There were also signs of continued strong demand.

So far this year, China has lived up to these expectations.

Despite the dips, both financial oil benchmarks remained close to their November 2014 highs of $79.47 and $71.92 a barrel respectively, reached the previous day.

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In the first four months of this year, South Korea's intake of Iranian oil dropped 34 percent to 4.69 million tonnes, or 286,308 bpd, versus about 7.1 million tonnes over the same period a year ago, the data showed.

The data poses worries that near-record high refinery runs may be short-lived.

Crude oil prices are now stable - both Brent and WTI are only slightly lower. Part of the "success" of these cutbacks is the result of economic and political instability in many oil producing countries. After reaching a bottom in late February around $3 per barrel, the Brent-WTI spread reached $5.15 per barrel in April, which was the highest level for the spread since January. Foreign ministers from the UK, France and Germany will meet with their Iranian counterpart, Javad Zarif, to discuss salvaging an accord that allows Iranian oil exports, after the United States withdrew last week.

Worries had also been growing about the potential reimposition of U.S. sanctions against Iran, which U.S. President Donald Trump announced on May 8, spurring some South Korean buyers to replace imports of Iranian condensate.

The U.S. dollar surged Tuesday, weighing on oil prices. Crude oil prices moved up during European trading hours and continued to rise during U.S. trading hours.

OPEC, along with 10 non-OPEC allies led by Russian Federation, are in the midst of a 1.8 million b/d supply cut agreement that is scheduled to run through the end of 2018, aimed at supporting prices and working down the glut of global oil inventories.

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