Oil steady near multi-year highs as U.S. drilling rises
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[May 14, 2018]
By Christopher Johnson
LONDON (Reuters) - Oil prices steadied
below 3-1/2 year highs on Monday as resistance emerged in Europe and
Asia to U.S. sanctions against major crude exporter Iran, while rising
U.S. drilling pointed to higher North American production.
Brent crude was up 15 cents at $77.27 a barrel by 1130 GMT. U.S. light
crude oil was up 5 cents at $70.75.
Both oil futures contracts hit their highest since November 2014 last
week at $78 and $71.89 a barrel respectively as markets anticipated a
sharp fall in Iranian crude supply once U.S. sanctions bite later this
year.
It is unclear how hard U.S. sanctions will hit Iran's oil industry. A
lot will depend on how other major oil consumers respond to Washington's
action against Tehran, which will take effect in November.
China, France, Russia, Britain, Germany and Iran all remain in the
nuclear accord that placed controls on Iran's nuclear program and led to
a relaxation of economic sanctions against Iran and companies doing
business there.
Some oil analysts have said they expect Iranian crude exports to fall by
as little as 200,000 barrels per day (bpd), while others put the figure
closer to 1 million bpd.
Michael Wittner, analyst at Societe Generale, forecasts U.S. sanctions
will remove 400,000-500,000 bpd of Iranian crude from the global oil
market.
"In 2012 the reduction in Iranian crude production and exports was
around 1 million bpd," Wittner said. "This time around, we expect much
less of an impact."
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Workers walk past storage tanks at Tullow Oil's Ngamia 8 drilling
site in Lokichar, Turkana County, Kenya, February 8, 2018. REUTERS/Baz
Ratner/File Photo
Greg McKenna, chief market strategist at futures brokerage AxiTrader, says it is
still "far from certain" that sanctions "will bite in the way intended".
"Germany has said it will protect its companies from U.S. sanctions, Iran has
said French oil giant Total has yet to pull out of its fields and all the while
it seems the Chinese are ready to fill the void created by the U.S."
The surge in oil prices comes at a time of tight supply amid record Asian demand
and voluntary output restraint by the Organization of the Petroleum Exporting
Countries and non-OPEC producers including Russia.
On Monday, however, markets were held in check by news of a rise in U.S.
drilling for new oil production.
U.S. drillers added 10 oil rigs in the week to May 11, bringing the total to
844, the highest level since March 2015, energy services firm Baker Hughes said
on Friday.
"Soaring U.S. shale output will continue to put a cap on prices," said Hussein
Sayed, chief market strategist at futures brokerage FXTM.
(To view a graphic on U.S. oil rig count, click: https://reut.rs/2rEGSMC)
(Additional reporting by Henning Gloystein in Singapore; Editing by David
Goodman)
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