Published: Thu, July 12, 2018
Business | By Tara Barton

Oil rallies as IEA warns of output capacity limits

Oil rallies as IEA warns of output capacity limits

That suggests Wednesday's tumble on news that Libya is reopening four oil export terminals was overdone.

Due to higher USA oil production, however, higher prices are not necessarily a net loss for the US economy.

The falls came despite a USA government report that American crude oil stockpiles fell by more than 12 million barrels last week and are about 4% lower than average for this time of year.

Washington had previously said countries must halt all imports of Iranian oil from November 4 or face US financial restrictions, with no exemptions. This was the biggest price slide in almost two years.

Rising global oil supply, driven by crude giants Saudi Arabia and Russian Federation, may come under pressure as key producers face disruptions, the International Energy Agency said Thursday.

An extended drawdown in United States supplies is seeing little consideration from buyers as traders pile into safer assets.

On Tuesday, the United States unveiled a list of $200bn worth of products to be hit with 10% tariffs, prompting China to vow counter-measures. If Libyan production can get back to its high then this will take care of some of the spare capacity concerns.

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The decline in USA inventories was partially due to a fall in stocks at the Cushing, Oklahoma delivery hub for US crude futures, which dropped 2.1 million barrels.

Thirdly, the new unknown is how much oil will the possible relaxation of USA sanctions on Iranian crude exports bring into the markets?

Non-OPEC production including from surging USA shale also continued to rise, but the IEA said that might not be enough to assuage concerns.

World markets remain vulnerable as the Trump administration seeks to choke off Iranian crude exports after the president quit an accord that polices the Islamic Republic's nuclear program.

The IEA report showed further signs that prices are taking a toll, with global demand growth slowing in the second quarter to just 900,000 barrels a day.

According to the September WTI chart, the trend is down according to the daily chart, putting the market in a position to test $67.99 to $66.81. Current action is being capped off at 75.35, a multi-year high for the commodity, while a continued push lower will be facing a popular support-resistance zone from 66.70 to 63.50.

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