Bloomberg Survey: Sanctions on Iraq Tighten Supply Prospects Oil Market Bullish Sentiment Rises Next Week
According to the survey results released by Bloomberg on Friday (May 11), crude oil traders and analysts turned bullish on the trend of US crude oil prices next week.
Of the 43 traders and analysts surveyed, 29 (67%) were bullish, 9 (21%) were bearish and 5 (12%) were flat.
U.S. WTI crude oil futures closed up $0.98, or 1.41 percent, at $70.70 a barrel for the week of May 11, with a high of $71.89 a barrel and a low of $67.63 a barrel. Brent crude futures closed up $2.25, or 3.01 percent, at $77.12 a barrel.
Oil prices slipped on Friday but remained close to a three-and-a-half-year high as renewed U.S. sanctions on Iran tightened the outlook for Middle East supplies at a time when global crude production only kept pace with rising demand.
The United States is reimposing sanctions on Iran, abandoning a deal reached in late 2015 that limited Tehran's nuclear ambitions in exchange for the lifting of US and European sanctions on Iran. Iran produces about 4% of the world's oil.
The global oil market is close to balance, with top exporter Saudi Arabia and No. 1 oil producer Russia leading the way in curbing oil supply to support oil prices.
John Kilduff, a partner at Again Capital in New York, said: "This is something similar to bullish: Iran, Venezuela, Saudi Arabia lack the behavior to bring more oil to the market quickly."
He said prices could strengthen later in the day as traders prop up positions. This is definitely not a pre-weekend shorting environment.
U.S. light crude oil futures closed down $0.66 to $70.70 a barrel on Friday, hitting a three-and-a-half-year high of $71.89 a barrel on Thursday.
Benchmark Brent crude fell to a daily low of $77.04 a barrel at Friday's close. On Thursday, Brent crude reached $78 a barrel, the highest level since November 2014.
Brent crude is expected to rise about 3 percent this week, while U.S. crude futures are up 1.4 percent.
Many analysts expect oil prices to rise as Iranian exports decline.
Rainer Seele, chief executive of Austrian oil and gas company OMV, told German daily newspaper Handelsblatt that he expected prices to rise as the United States took steps to re-impose sanctions.
"It is not clear what specific US sanctions will be imposed. But I expect the price of Brent North Sea crude to be closer to 80 dollars than 70 dollars," Seele said in an interview.
The U.S. investment bank said in a report Jefferies that it expects Iranian crude oil exports to begin to decline in the coming months.
"We expect that Iran's exports will be reduced by 500000 bpd (bpd) around October and eventually by 1 million bpd," the bank said."
However, there are signs that other members of the Organization of Petroleum Exporting Countries (OPEC) will increase production in response to the reduction in Iranian crude oil production.
Jefferies said OPEC had the capacity to "replace Iran's losses," but added: "Even if physical supply remains unchanged... the market will still face low levels of spare capacity."
Outside OPEC, soaring U.S. crude oil production could help fill Iran's supply gap. Last week, U.S. oil production hit a new high of 10.7 million barrels a day.
That's up 27 percent since mid -2016, meaning U.S. output is edging closer to that of top oil producer Russia, which produces about 11 million bpd.
The weekly rig count for the Baker Hughes division shows that U.S. drillers added 10 rigs for a total of 844. The rig count is a forward-looking indicator of production. (From International Oil Network)