Oil pulls back from multi-year highs on China economy fears

Source U.S. Energy Information Administration Short Term Energy Outlook May 2018

However, EIA expects West Texas Intermediate (WTI) crude oil price to average $5/barrel lower than the Brent price this year.

"For now, the rapidly changing geopolitical landscape will move the attention away from stocks as producers and consumers consider how to limit volatility in the oil market", the agency stated.

The difference between the two benchmarks briefly widened to more than $8 a barrel, the widest gap since April 2015, reflecting surging US crude supplies and a greater geopolitical risk to Brent-based crudes.

World supply, meanwhile, rose 1.78 million bpd in April from a year earlier, driven predominantly by non-OPEC production. "The spread between the two contracts is basically Europe and Asia screaming for more oil from the United States to fill the potential void and feed their ravenous oil demand", he said.

"The API inventory data in the USA fits with. a topping pattern - or at least a decent pause - for oil prices at the moment", said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

Source U.S. Energy Information Administration Short Term Energy Outlook May 2018
Source U.S. Energy Information Administration Short Term Energy Outlook May 2018

U.S. shale oil production is expected to rise by about 145,000 bpd to a record 7.18 million bpd in June, the U.S. Energy Information Administration said on Monday.

"The Saudi's are signaling that they would be relaxed with the scenario in which they temporarily over tighten the market", said Paul Horsnell, the head of commodity research at Standard Chartered.

Oil prices hit a 3-1/2-year high on Tuesday, supported by tight supply and planned USA sanctions against Iran that are likely to restrict crude oil exports from one of the biggest producers in the Middle East. Brent crude oil LCOc1 reached $79.22 a barrel, up 99 cents and its highest since November 2014. Crude oil production in March was around 3.76 million bpd, flat compared with the average levels in January and February. Concerns over the impact of USA re-sanctioning on Iran apart from other factors like economic crisis in Venezuela are keeping the oil prices high.

USA shale oil production, meanwhile, is forecast to continue its climb.

The bottleneck in North America likely contributed to a 4.9 million barrel rise in USA crude oil inventories, to 435.6 million barrels, that the private American Petroleum Institute reported on Tuesday. The U.S. crude contract fell as much as 0.6 percent to $70.95 a barrel on Wednesday.

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