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Oil Drops on Increased Crude Supplies

May 23, 2018 at 16:35 by Matt Jackson

An unexpected jump in US crude oil supplies has led to a dip in oil prices on Wednesday, although continued supply concerns dominate the market.

Analysts had expected a drop of around 1.5 million barrels. However, the Energy Information Administration report highlighted an increase of 5.8 million barrels for the week ending May 18. Expectations that OPEC would increase its supply to make up for the shortfall that will be caused by sanctions on Iran and Venezuela has also calmed the nerves that were pushing prices upwards and leading to 3 1/2-year highs earlier in the week.

OPEC nations, including Russia and Saudi Arabia, agreed to reduce supply by 1.8 million barrels per day until the end of this year. Only a month ago, there had been suggestions that the nations would further extend this deal in order to support oil prices, but this has changed in recent weeks, primarily led by US sanctions against Iran and Venezuela.

First, the USA declared that it was not only abandoning the Iran nuclear deal, but that they would be reintroducing even stricter sanctions against the nation. The sanctions would heavily restrict any nation from buying oil from Iran, which is OPEC’s third, and the world’s fifth, largest producer of oil. They supply approximately 4 million barrels per day. While this is only a fraction of the 80 million barrels per day of global supply, it would still represent a major disruption to supply levels.

More recently, President Trump announced that his administration would be placing economic sanctions against Venezuela; a decision that was backed by European and global leaders. Venezuela produces less than half the amount Iran does, approximately 2.3 million barrels per day, which increases investors’ concerns. Sources have said that the OPEC nations are meeting next week to discuss the possibility of increasing their supply to meet the shortfall produced.

WTI crude prices fell 0.64% to $71.74 while Brent crude fell 0.44% to $79.24 at 17:00 GMT.

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