As forecasted by J.P.Morgan: oil prices may head lower

10 Juin, 2018, 12:24 | Auteur: Auguste Feret
  • Oil prices fall on dip in China demand surging US output

Brent crude, the worldwide benchmark against which Nigeria's crude oil is set, briefly hit $80.18 before dropping to $79.67 per barrel. US WTI crude futures recovered some earlier losses to trade 8 cents down at $65.87. Still, at the back of investor's minds is the thought that prices may lack support if the supply tap is turned back on to full by the end of the year.

As per the forecast of J.P. Morgan in a research note which came out on Friday, the prices of Oil are heading for a downturn later this year and will be sinking even lower in 2019 as the fundamentals of supply and demand weaken.

Oil prices fell, reversing early gains as signs of weakening demand in China and surging USA output weighed on markets despite support from supply woes in Venezuela and OPEC´s production cuts.

Hedge funds and other money managers cut their bullish bets on U.S. crude futures in the week ended June 5, the U.S. Commodity Futures Trading Commission (CFTC) said.

On the supply side, global output is poised to rise by 2 million barrels a day in 2018, 200,000 barrels a day higher than J.P. Morgan's last forecast.

China's May crude oil imports eased away from a record high hit the previous month, customs data showed, with state-run refineries entering planned maintenance.

Further weighing on prices has been rising USA output, which hit another record last week at 10.8 million bpd.

Kazempour Ardebili made the comments in response to reports that the U.S. government had quietly asked Saudi Arabia and some other OPEC producers to increase oil production by about one million barrels a day.

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May shipments were 39.05 million tonnes, or 9.2 million barrels per day (bpd).

The surge in U.S. production has pulled down WTI into a discount versus Brent of more than $11 a barrel, its steepest since 2015.

It also follows Washington's decision to re-impose sanctions on Iran's crude exports that had previously displaced about one million barrels a day, or just over one percent of global production.

Markets have been tightened by supply trouble in Venezuela, where state-owned oil company PDVSA is struggling to clear a backlog of about 24 million barrels of crude waiting to be shipped to customers.

US President Donald Trump pulled out of that nuclear deal last month and announced the "highest level" of sanctions against Iran, the biggest producer in the Organisation of the Petroleum Exporting Countries (Opec) after Saudi Arabia and Iraq. An economic crisis in Venezuela is curtailing the country's oil production, while a planned reinstatement of US sanctions against Iran also is expected to impede production from OPEC's third-largest member.

Headlines on OPEC members' plans for the meeting later this month will lead to volatile market swings, said Tariq Zahir, managing member of Tyche Capital Advisors in NY.

The fascinating dynamic between the three most important players here - the US, Russia and the Saudis - is going to tell the real story of what the final outcome from the OPEC meeting will be and where oil prices are going to go from here. "I believe that the help of the European Union helps us. the level of our oil exports will not change", Zangeneh said.

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