IEA warns global oil demand may suffer as crude nears $80

"Global oil demand growth for 2018 has been revised slightly downwards from 1.5 million barrels per day", the IEA said int latest oil supply report.

July Brent crude LCON8, +0.05% was up 90 cents, or 1.1%, at $80.18 a barrel on ICE Futures Europe, after tapping a high of $80.33. It stood at $79.39 as of 8:20 pm Nigerian time.

For its part, crude Texas - a benchmark for USA - has also experienced growth in recent months.

The 50 percent rise in oil prices in the previous year is encouraging major companies such as ExxonMobil (XOM.N), Royal Dutch Shell (RDSa.L), Chevron (CVX.N), BP (BP.L) and Total (TOTF.PA) to increase output.

"We are going to have reduced supplies from Iran in six months and Venezuela hasn't shown that they can stop the drop in their supplies", said Gene McGillian, vice president of research at Tradition Energy".

Pouyanne said geopolitics - particularly President Donald Trump's decision last week to withdraw the U.S. from the Iran nuclear deal and the severe decline in Venezuelan oil output - are driving prices higher.

"Supply concerns are top of mind after the USA left the Iran nuclear deal", said Norbert Ruecker, head of macro and commodity research at Julius Baer Group Zurich.

Further, the global oil inventories are expected to remain under pressure due to supply constraints arising from the geopolitical turmoil.

The Bank of England noted last week that oil prices were up by 13 per cent this month compared to February and that this would push up petrol and diesel prices, lifting inflation over coming months.

Iran's base oils market outlook is clouded with uncertainties following the US' decision to re-impose sanctions on the country.

"We are back to the situation where we were before the 2016 agreement and in the meantime Iran has grown its exports by 1 million barrels a day", Pouyanne said.

Over the last three years, the two countries have been a seesaw of production.

Oil's advance to $80 brings it to the level that OPEC's biggest member, Saudi Arabia, is reportedly seeking to cover the cost of weighty domestic spending commitments and raises hope that Nigeria's projected budget deficit in 2018 and next year could narrow considerably. "Also if the USA can get China to loosen energy ties with Iran, then regardless of increased U.S. shale production, the price could close in on $100". It allowed India to make a portion of oil payments to Tehran in rupees through state-run UCO Bank that has no U.S. exposure that could lead it to fall foul of any new sanctions.

On the flip side, high oil prices would hurt consumption, the International Energy Agency warned on Wednesday as it lowered its global oil demand growth forecast for 2018 to 1.4 million bpd from 1.5 million bpd.

  • Joey Payne