Oil hits $80 a barrel on concerns about Iran supply

US bank Morgan Stanley said it had raised its Brent price forecast to $90 per barrel by 2020, due to a steady increase in demand. (Reuters)
Updated 17 May 2018
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Oil hits $80 a barrel on concerns about Iran supply

  • As a result of its surging production, US crude is increasingly appearing on global markets
  • Commodity brokerage Marex Spectron said that the surge in US supplies was a “strongly price-bearish development”

LONDON: Oil prices hit $80 a barrel on Thursday for the first time since November 2014 on concerns Iranian exports could fall, reducing supply in an already tightening market.
Brent crude futures hit $80 and stood up 57 cents at$79.85 per barrel at 0955 GMT.
US West Texas Intermediate (WTI) crude futures were up 64 cents at $72.13 a barrel, also their highest since November 2014.
The prospects of a sharp drop in Iranian oil exports in the coming months due to renewed US sanctions following President Donald Trump’s decision to withdraw from an international nuclear deal with Tehran has lifted oil prices in recent weeks.
France’s Total on Wednesday warned it might abandon a multi-billion-dollar gas project in Iran if it could not secure a waiver from US sanctions, casting further doubt on European-led efforts to salvage the nuclear deal.
“The geo-political noise and escalation fears are here to stay,” said Norbert Rücker, Head of Macro & Commodity Research, at Swiss bank Julius Baer. “Supply concerns are top of mind after the United States left the Iran nuclear deal.”
Global inventories of crude oil and refined products dropped sharply in recent months due to robust demand and production cuts by the world’s top producing countries.
Oil stocks were expected to drop further as peak summer driving season nears, offsetting increases in US shale output, said analysts at Bernstein.
“While the sharp rise in US production and rig count has raised questions on the sustainability of inventory draws through 2018, we believe that inventories will continue to draw as we enter the summer driving season in 2018,” they said.
Several banks have in recent days raised their oil price forecasts, citing tighter supplies and strong demand.
But high oil prices could hit consumption, the International Energy Agency warned on Wednesday, lowering its global oil demand growth forecast for 2018 to 1.4 million from 1.5 million barrels per day (bpd).
Asia’s demand is at record highs and with rising prices its crude could cost $1 trillion this year, about twice what it paid during the market lull of 2015/2016.
The IEA said global oil demand would average 99.2 million bpd in 2018, although US bank Goldman Sachs said consumption would cross 100 million bpd “this summer.”
Leading production increases is the United States, where crude output has soared by 27 percent in the last two years, to a record 10.72 million bpd, putting the United States within reach of top producer Russia’s 11 million bpd.
Goldman Sachs, though, said even with a slowdown in demand and soaring US output, global oil markets would remain tight.
“US shale cannot solve the current oil supply problems,” it said, arguing that US oil would not be sufficient to offset production losses from Iran, Venezuela and Angola.
Goldman also said the tight market left “room for OPEC to exit (its production cuts) without significant price impact.”


UK shoppers rein in spending as Brexit nears

Updated 42 min 14 sec ago
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UK shoppers rein in spending as Brexit nears

  • Retail sales volumes fell 0.2 percent in the fourth quarter after a 0.2 percent rise in the three months to November
  • Businesses are also cutting investment before Britain’s scheduled departure from the EU in late March

LONDON: British shoppers cut back on spending in the three months to December for the first time since last spring, adding to evidence of a consumer slowdown as Brexit approaches, data showed on Friday.
Retail sales volumes fell 0.2 percent in the fourth quarter after a 0.2 percent rise in the three months to November, the Office for National Statistics (ONS) said.
Friday’s data chimed with other signs that consumer spending is cooling after a strong summer.
Businesses are also cutting investment before Britain’s scheduled departure from the European Union in late March, leaving the overall economy growing at a snail’s pace.
In December alone, retail sales fell 0.9 percent, recoiling after November’s Black Friday splurges, but were 3.0 percent higher than a year earlier. Both readings were below economists’ forecasts in a Reuters poll.
“A major concern for retailers will be that already cautious consumers further limit their spending in the near term at least due to the heightened uncertainties over Brexit,” economist Howard Archer from the EY ITEM Club consultancy said.
Sterling and British government bonds were little changed after the data.
The ONS said the value of sales fell for the first time in three years in the three months to December, underlining a squeeze on retailers’ profit margins as they battle for customers.
A survey last week from the British Retail Consortium showed retailers failed to increase Christmas sales for the first time since the depths of the global financial crisis a decade ago.
Supermarkets Sainsbury’s and Morrison missed Christmas sales forecasts though Tesco beat them. Clothing retailer Next and department store John Lewis reported a late surge in demand.
The ONS data showed a drop in sales of carpets and floor coverings, possibly reflecting a stalling housing market.
While disarray over Brexit has weighed on consumer confidence, there has been some comfort for households recently with the fastest underlying pay growth since 2008 and inflation falling to an almost two-year low of 2.1 percent.
Highlighting the easing of inflation pressures, the ONS’s measure of annual price increases in stores cooled to 0.6 percent in December from 1.3 percent in November, the smallest uptick in more than two years.