Oil Slips on Weaker Demand Outlook
May 16 2018 - 12:01PM
Dow Jones News
By Sarah McFarlane and Alison Sider
Oil prices eased off 3 1/2 -year highs Wednesday on signs this
year's rally is starting to choke off demand growth.
U.S. crude futures recently traded down 27 cents, or 0.38%, to
$71.04 a barrel on the New York Mercantile Exchange. Brent, the
global benchmark, fell 23 cents, or 0.29%, to $78.20 a barrel on
ICE Futures Europe.
In the closely monitored International Energy Agency monthly
report, 2018 demand growth was revised to 1.4 million barrels a day
from a previous 1.5 million barrels, a change attributed to higher
oil prices. The report, published Wednesday, pegged 2018 oil demand
at 99.2 million barrels a day.
"We warned about the negative impact that higher oil prices
should have on product demand growth," said Olivier Jakob, managing
director of Swiss-based consultancy Petromatrix.
Brent oil prices have risen around 17% this year, boosted by
production cuts by major producers tightening supplies and
increased geopolitical tensions.
Some said the IEA is too pessimistic about demand.
"We recognize the risk of higher prices curtailing demand, but
given the strength of demand in [the first half of 2018], solid
global economic demand growth and OPEC's estimated spare capacity
available to keep the global market supplied, we anticipate
stronger demand growth," Wells Fargo analyst Roger Read wrote in a
research note.
And oil prices pared losses after the U.S. Energy Information
Administration reported larger declines in oil inventories than
expected, as U.S. crude exports soared. Crude oil stockpiles fell
by 1.4 million barrels in the week ended May 11, compared with
analysts' forecasts of a 400,000-barrel decline. Gasoline
stockpiles fell by 3.8 million barrels, compared with expectations
of a 1.2 million barrel drop.
"Overall a rather bullish report with the yearly and five-year
average inventory deficits both rising," Kyle Cooper, a consultant
at ION Energy, said.
The U.S. is the latest sign of a tightening global oil market.
The IEA also said that commercial oil stockpiles in industrialized
economies have fallen to their lowest levels in three years.
Investors continued to monitor developments with Iran, following
the U.S. withdrawal from the 2015 international nuclear agreement,
which had seen the easing of sanctions against Iran in return for
curbs to their nuclear program.
Iran is the third-largest oil producer in the Organization of
the Petroleum Exporting Countries, and in the past sanctions have
curbed its exports by around 1 million barrels a day.
Members of OPEC have pledged to step in and ramp up production
if needed. However, for now, it's "business as usual" as the cartel
continues to adhere to its agreement to cut supplies, said Stephen
Brennock, an analyst at brokerage PVM.
"Any boost in output would signal the death knell of the OPEC
supply cut pact. Production curbs will therefore remain in place
with OPEC's core leadership thus far uncompelled to fill any void
left by missing Iranian barrels."
Gasoline futures rose 0.42% to $2.2141 a gallon. Diesel futures
edged down 0.28% to $2.2428 a gallon.
Write to Sarah McFarlane at sarah.mcfarlane@wsj.com and Alison
Sider at alison.sider@wsj.com
(END) Dow Jones Newswires
May 16, 2018 11:46 ET (15:46 GMT)
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