As global supply stocks lessen, oil industry experts are agreed that the crude market is becoming ever more sensitive to a sudden or unexpected disruption. However there appears to be little agreement on what the current biggest risk actually is. Oil prices have soared since the start of the year, supported by ongoing OPEC-led supply cuts, escalating fighting in Libya and U.S. sanctions on Iran and Venezuela.
International benchmark Brent crude and U.S. West Texas Intermediate crude have risen by approximately 30% and 40% respectively since the start of the year. The primary reason for the run-up is simple: The market is tightening. That means a global oversupply of crude is draining, bringing supply and demand into balance and putting the market at risk of flipping into shortage. Energy analysts tend to agree that intensifying risk indicators in the oil market is a cause for concern.
“Expectations are rife that Washington will tighten the sanctions screw on the OPEC nation in line with its ultimate goal of reducing Iran’s oil exports to zero. Needless to say, the oil market is currently experiencing a supply deficit and any further reduction in supplies from Libya and Iran would cause the market to overtighten and prices to overshoot,” PVM Oil Associates’ Brennock said.
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