Oil rises on Iran sanction worries, but surging U.S. supplies limit gains

An oil pump is seen at sunset outside Vaudoy-en-Brie

An oil pump is seen at sunset outside Vaudoy-en-Brie

Oil prices edged higher on Thursday despite swelling USA crude inventories and record weekly United States production, as focus shifted back to oil cartel Opec supply cuts and the potential of new U.S. sanctions against Iran.

"There are worries that Iran's oil exports could fall by about 1 million barrels per day from current levels", said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting in Tokyo.

According to the survey, OPEC pumped about 610,000 bpd below this implied target in April, not least because of the involuntary declines in Venezuela and Angola.

"Risk is priced in but when it happens there will be another shock, and not necessarily on that day".

Russian Federation is leading the non-OPEC group of oil producers part of the pact with OPEC to cut production in order to draw down inventories and boost oil prices.

The speculation on Iran and escalating geopolitical risks have driven crude futures in NY and London more than 10% higher over the past two months.

Demand for Iranian crude in Europe remains stable but interest for rival Iraqi and Saudi barrels are climbing amid the growing likelihood that United States sanctions could restrict the country's crude flows. His absence fueled speculation about a return to instability, which threatened new oil supply disruptions.

USA oil production rose to a record of 10.62 million bpd, putting it ahead of Saudi Arabia, the biggest OPEC producer.

U.S. West Texas Intermediate and international-benchmark Brent crude recovered from early weakness on Wednesday to close higher for the session. Hopefully war will be avoided, but if it breaks out, some analysts see a potential price spike as high as $250 per barrel.

The US now produces more crude oil than top exporter and Opec-kingpin Saudi Arabia.

Iran, the third-largest oil producer in OPEC after Saudi Arabia, is now producing around 3.82 million b/d of crude oil, according to Platts estimates. Another reason for the upward trend in exports is the renewed price differential between Brent and WTI. At the same time, oil shipments via pipeline to China have surged by 43 percent.

USA producers are being incentivised to ramp up production as OPEC restricts production and raises prices.

Total products supplied over the past four-week period averaged over 20.1 million barrels per day, up by 2.7 percent from the same period a year ago.

Meanwhile, as Iran is reportedly selling as much of its oil as it can to clients (to the tune of 2.6 million barrels per day in April, according to the SHANA news agency), Citi warned in a note to investors of the risk that prices could slump because too many traders are betting on renewed sanctions. We expect bunker prices may continue slight upward evolution next week.

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