Oil dips on soaring US supply, Iran sanctions still support crude

US sanctions against Iran have denied its government more than $10 billion in oil revenue.

Oil prices dipped on Thursday as the record output from the United States (US) and rising crude stockpiles dampened the impact on markets of tighter US sanctions on Iran as well as the continued curbs on supply by the Organisation of Petroleum Exporting Countries (OPEC).

Brent crude futures were at $74.53 per barrel at 0241 GMT, down four cents from their last close.

US West Texas Intermediate (WTI) crude futures were at $65.75 per barrel, down 14 cents, or 0.2 percent, from their previous settlement.

Crude futures rose to 2019 highs earlier in the week after the US said on Monday it would end all exemptions for sanctions against Iran, demanding countries halt oil imports from Tehran from May or face punitive action from Washington.

“Following the US decision to toughen its sanctions on Iran. We have revised up our end-year forecast for Brent crude from $50 to $60 per barrel,” analysts at Capital Economics said in a note.

US sanctions against Iran have denied its government more than $10 billion in oil revenue since President Donald Trump first announced the move last May, a US official said on Thursday during a media call.

“Before sanctions, Iran generated as much as $50 billion annually in oil revenue. We estimate that our sanctions have already denied the regime more than $10 billion since May (2018),” said Brian Hook, US Special Representative for Iran and Senior Policy Advisor to the Secretary of State.

The US decision try and bring down Iran oil exports to zero comes amid supply cuts led by producer OPEC since the start of the year aimed at propping up prices.

As a result, Brent crude oil prices have risen by almost 40 percent since January.

Despite this, Capital Economics said, “We still expect oil prices to fall this year as sluggish global growth weighs on oil demand, US shale output grows strongly and investor aversion to risk assets like commodities increases.”

In Asia, South Korea’s economy unexpectedly shrank in the first quarter, the Bank of Korea said on Thursday, marking its worst performance since the global financial crisis.

On the supply side, US crude oil production has risen by more than 2 million barrels per day (bpd) since early 2018 to a record of 12.2 million barrels per day (bpd) currently, making the US the world’s biggest oil producer ahead of Russia and Saudi Arabia.

In part because of soaring domestic production, US commercial crude oil inventories last week hit a October 2017 high of 460.63 million barrels, the Energy Information Administration said on Wednesday. That was a rise of 1.3 million barrels.

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