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The rise in oil prices has returned. During the week ending September 14, the price of Brent reached $ 78.09 per barrel and WTI reached $ 68.99. The Brent / WTI spread continues to widen considerably. From $ 5.50 at the end of July to $ 7.60 at the end of August, it closed at $ 9 a barrel on Friday. This is mainly due to the very low inventories in Cushing, Oklahoma, which are 33.2 million barrels lower than last year. This resulted in a sharp reduction in the price of WTI in Midland compared to WTI on the US Gulf Coast. The wider spread of Brent / WTI is also attributed to concerns over upcoming sanctions against Iran, which will come into effect on 4 November.
Iran's oil exports dropped to nearly 1.7 million barrels a day, the lowest output in over two years. This results in unease as refiners demand exceeds supply. The tightening of the oil market became evident after Brent's price structure fell behind after flirting with contango for most of the previous four months, signaling a tightening of the spot market. The delay is when the current price of oil is higher than a distant futures contract. It is considered a sign of higher immediate demand and a lower oil supply.
This week, the delay has further increased, with higher prices than futures prices. This does not encourage stock storage. The structure of the downgrade market is a bullish factor that increases trading activity and reduces inventory. This is a real problem when global oil stocks have already declined.
A country is trying to take advantage of the tight oil market. Iran believes that US sanctions can not reduce Iranian oil exports to zero. His position is that the world oil market is already tight and competing producers can not fill the gap. However, Iran has neglected to take into account Saudi Arabia's spare capacity of 2 million barrels a day. Similarly, Saudi Arabia replaced most of Iran's oil deficit during the 2012-2015 sanctions. Iran is at the root of much of the rumor about the impending rise in oil prices. In truth, the market is tight, but oil prices are stable in the range of 72 to 78 dollars per barrel. This is the result of Saudi Arabia's influence in working with OPEC + for the benefit of the global economy.
Breakdowns in some OPEC countries are putting upward pressure on prices. Although the US Energy Information Administration (EIA) reported that Libyan crude output jumped from 290,000 barrels a day in August to 950,000 barrels a day, Libya's oil output was unstable and unstable. Major breakdowns in June in several Libyan ports created concerns that contributed to higher prices. Production fell from about 1 million barrels per day at the beginning of the year to 660,000 barrels in July.
The EIA also reported that Venezuelan production had dropped to only 1.26 million barrels a day, continuing its downfall as a result of the country's economic collapse. Such low exports are tragic for a country with about 300 billion barrels of proven reserves. Unfortunately, due to years of underinvestment, there is currently no hope that Venezuela will increase its production.
In Iraq, the situation is also difficult. The demonstrations in Basra, where most of Iraq's production and export facilities are located, have created tensions in such a tense market. So far, the violence has not affected oil production, which reached 4.55 million barrels per day in July, and exports recently reached a record 3.59 million barrels per day. It takes nerves of steel to navigate safely in such market conditions.
• Faisal Mrza is a consultant in energy and oil marketing. He was formerly with OPEC and Saudi Aramco. Twitter: @faisalmrza.
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