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Oil Retraces on Reduced Demand and Increased Crude Stockpile

May 16, 2018 at 13:43 by Matt Jackson

Brent crude oil has slipped back below $78 per barrel as demand has started to slow with prices nearing the $80 mark. API reports showed a surprise gain in the stockpile of US oil, hinting that demand may be slowing as prices reached 3 1/2-year highs.

Analysts had expected crude oil reserves to have experienced a decline of 2.3 million barrels. In fact, the American Petroleum Institute announced that the stockpile had actually increased by 4.9 million barrels.

A report from the International Energy Agency, on Wednesday, stated that global demand for crude had slipped to 1.4 million barrels per day, down from 1.5 million barrels. The report highlighted strong growth in the first quarter of 2018 and pointed to the fact that this growth in demand has continued, but also cautioned that global demand could now be slowing. News of Iranian sanctions and geopolitical uncertainty, as well as a continued curbing of supply by OPEC, had seen prices rocket to nearly reach $80. There is likely to be some degree of profit taking in this most recent slide, but the news of slowing demand will prove a point of concern for a lot of buyers. It also indicates that buyers might view these prices as too high, and that they are waiting for rates to slip before they consider buying more.

Although there is some hope that the remain Joint Comprehensive Plan of Action (JCPoA) member countries will try to salvage the so-called Iran nuclear deal, the withdrawal of the USA has come as a major blow. Iranian officials reacted angrily to the news, burning a US flag in their official parliament buildings, and stating that they did not trust the USA anymore. Although Iran does not supply anywhere near the kind of volume as nations like Saudi Arabia, they are still the 3rd largest oil producer in OPEC, so disruption to the supply will have a major influence on prices.

Oil prices reached a 3 1/2-year high on Tuesday, but have cooled off during Wednesday’s trading. WTI crude was down 0.5% to $70.95, while Brent crude has fallen 0.78% to $77.82 per barrel at 14:00 GMT.

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