Crude Oil Higher On Dwindling OPEC Output

U.S. West Texas Intermediate (WTI) crude futures were at $71.03 a barrel, down 28 cents, or 0.4 percent, from their last settlement.

Both oil futures contracts hit their highest since November 2014 last week at 78 dollars and 71.89 dollars a barrel respectively, as markets anticipated a sharp fall in Iranian crude supply once USA sanctions bite later this year.

The difference between the two grades briefly widened to more than $8 a barrel, the widest gap since April 2015, reflecting surging US crude supplies and a greater geopolitical risk to Brent-based crudes.

With renewed US sanctions looming against OPEC-member Iran and oil demand strong, analysts said crude markets will likely remain tight for much of the year. "Brent is pricing in the idea that all the risk to supplies is overseas - there's a concern that all the supplies that are tight in Europe are only going to get tighter".

The Organization of the Petroleum Exporting Countries and other large oil producers led by Russian Federation, have agreed to cut their combined oil output by 1.8 million bpd to reduce bloated global oil inventories and support prices. The deal was reached in July 2015 between Iran, Russia, the United States, Great Britain, China, France and Germany - the agreement guarantees the peaceful nature of Tehran's nuclear program, and its implementation removes the sanctions imposed by the UN Security Council, the United States and the European Union.

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The tightening market has all but eliminated a global supply overhang that depressed crude prices between late 2014 and early 2017.

The data poses worries that near-record high refinery runs may be short-lived. This compares with 340 million barrels when OPEC, Russia, and several other producers agreed to cut production to stimulate prices.

The bottleneck in North America likely contributed to a 4.9 million barrel rise in USA crude oil inventories, to 435.6 million barrels, that the private American Petroleum Institute reported on Tuesday.

It remains unclear how hard US sanctions will hit Iran's oil industry.

What this amounts to on a grander scale, Descalzi argued, is uncertainty for investors, especially those involved with long term multi-billion dollar projects: "And when there is a lot of uncertainty, the investment is not easy to be performed; but there are so many other geopolitical issues, that the landscape is very hard to understand where we're going".

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OPEC, for its part, estimated that the excess oil inventories in the OECD had shrunk to just 9 million barrels.

US crude is trading at a hefty discount to Brent, the worldwide marker, thanks to sharp rises in USA production to 10.7 million bpd, which has left the American domestic oil market well supplied.

US shale production is expected to hit a record 7.18 million barrels per day (bpd), the Energy Information Administration said.

This story has not been edited by Firstpost staff and is generated by auto-feed.

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