Oil markets to continue to tighten as supplies decline

The global oil market is expected to continue to tighten in the short term due to falling oil supply from Iran and to some extent from Venezuela, according to analysts.

“This development will increase the pressure on producers with spare capacity to produce more. Inadvertently, a drop in spare capacity would be viewed as price positive given the reduced ability to react to an unforeseen future disruption,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Oil prices have been rising in recent months on supply concerns following the decision of the US president Donald Trump to reimpose sanctions on Iran. Oil output from Venezuela is also falling due to economic problems in the South American country.

Brent, the global benchmark was trading at $79.78 (Dh293) per barrel, up by 0.62 per cent when markets closed on Friday. West Texas Intermediate was up by 0.68 per cent at $69.12 per barrel.

“At this stage, we simply do not know the full impact of sanctions on Iran, and whether the production cut ends up closer to 0.5 million or 2 million barrels per day will determine if oil costs closer to $70 per barrel or $100 per barrel by yearend,” Hansen added.