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Oil supported by Iran sanction fears, holds near 2014 highs

16 May 2018

Brent, the worldwide benchmark, rose as much as 1% at $79.47 per barrel around 8:30 a.m. ET.

On the New York Mercantile Exchange, June West Texas Intermediate crude added 35 cents, or 0.5%, to settle at $71.31 a barrel.

Tuesday reported a large build of 4.85 million barrels to the US crude oil inventories for the week ending May 11.

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

Growth in USA output, meanwhile, has tamed price moves for US benchmark crude in recent sessions, preventing it from notching a fresh multiyear high.

Crude oil continues to remain glued to three-year highs and WTI crude prices testing the 72.00/barrel price level as Middle East tensions continue to bolster oil prices.

World oil prices have surged more than 70 percent over the a year ago as demand has risen sharply while production has been restricted by the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, and other producers, including Russian Federation.

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The recent decision by US President Donald Trump to withdraw from the Iran nuclear agreement has raised fears that renewed sanctions by Washington could severely hit production from the Middle East state, which now produces 3.8 million bpd and exported 2.6 million bpd last month - making it Opec's third-largest supplier.

Data from China's refineries showed that in April, these processed some 12.06 million barrels of crude daily, up 12 percent on the year and also the second-highest daily throughput rate on record, Reuters noted.

"The commitment of Saudi Arabia and the rest of OPEC to the production cuts is a major factor in supporting the price at the moment as well as the possibility of reduced exports from Iran due to sanctions", said William O'Loughlin, investment analyst at Rivkin Securities.

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"For now, the rapidly changing geopolitical landscape will move the attention away from stocks as producers and consumers consider how to limit volatility in the oil market", the IEA said.

"A rising oil price brings upside price risk to all commodities", Morgan Stanley said in a note to clients this week.

Global oil supplies could be hit by the decision by the U.S. to pull out of the Iran nuclear deal, and also by falling production in crisis-hit Venezuela, the IEA said on Wednesday. With Japan and South Korea already indicating that they will aim to attain a waiver from the United States in order to continue buying Iranian crude, the impact of Trump's actions will rest on how far he goes in comparison with Obama's previous sanctions.

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Oil supported by Iran sanction fears, holds near 2014 highs