Published: Sun, July 01, 2018
Markets | By Otis Pena

Oil prices rally after big U.S. crude inventory drop

Oil prices rally after big U.S. crude inventory drop

The joint ministerial monitoring committee of OPEC, Russia and the other non-OPEC partners has proposed a production increase of 1 million barrels daily after Saudi Arabia persuaded Iran to cooperate in efforts to reduce the crude price and avoid a supply shortage.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $72.42 a barrel at 0639 GMT, down 34 cents, or 0.5 percent, from their last settlement.

This increase in production will partially offset the 1.2 million barrel decline set in late 2016, which helped boost oil prices by about 50 percent.

"Yes, we are asking them to go to zero", the official said when asked if the United States was pushing allies, including China and India, to cut oil imports to zero by November. Oil ministry sources say India has already widened its crude basket to three continents and that its top suppliers are Iraq, Saudi Arabia, Iran, Venezuela and Nigeria.

According to Helima Croft, global head of commodities research at RBC, the Thursday statement from the State Department shows that the USA wants to be aggressive in reducing as much Iranian oil exports as possible, and companies have already started to react.

The State Department official, who spoke on condition of anonymity, said the USA will be talking in a week or so "with our Middle Eastern partners to ensure that the global supply of oil is not adversely affected by these sanctions".

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"It would not be a heavy lift for OPEC to replace Iran's contribution to world oil markets - Saudi Arabia could probably do it on its own", Krane said. The Energy Department said on Wednesday that strong demand sent crude oil inventories plunging by 9.9 million barrels last week - about four times what analysts anticipated.

The stock draw was also due to high exports of nearly 3 million bpd, coupled with domestic refinery activity hitting a utilization rate of 97.5 percent, the highest in at least a decade.

Front-month WTI's premium to the second month surged after the data and hit a session high of $1.81, while USA crude's discount to Brent narrowed to the smallest in three months at $3.92 a barrel.

His task was made easier by Russian Federation which has been chumming up to Saudi Arabia as the two world-leading producers cement their co-operation to steer global oil policy. And so I think this initiative if it indeed materializes it's going to be nearly a game changer for the global oil market. The biggest importer of Iranian oil previous year was China.

An expert predicts that Iranian output will fall due to Washington's sanctions and may push up prices. Given the huge energy needs, India and China are major importers of Iranian oil and if the USA sanctions come into effect both would be the worst affected.

Goldman Sachs said the planned unilateral US sanctions against Iran would likely have a "high level of efficiency". South Korea is also cutting its imports from Iran: in May, these fell to a two-year low of less than 180,000 bpd.

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