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Crude oil prices returned to the uptrend on Friday

Crude oil prices returned to the uptrend on Friday, adding more than 1% amid an expected decline in US rig count.

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Crude oil prices rose on Friday, backed by shrinking supplies from OPEC and US sanctions against Iran and Venezuela. The futures on US crude oil WTI with delivery in May rose by 1.32% to 64.42 USD per barrel at 07:50 a.m. ET. The Brent oil increased by 1.12% to 71.62 USD per barrel.

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According to an analysis of the Canadian bank RBC Capital Markets, Brent and WTI will reach average prices for the rest of the year of 75 USD and 67 USD per barrel, respectively. The geopolitical factors could push oil at levels over 80 USD for a certain period in the summer.

The crude oil markets have grown by more than 35% since the beginning of the year due to supply cuts by the Organization of Petroleum Exporting Countries (OPEC), sanctions against Iran and Venezuela, and the growing conflict in Libya.

Production in Venezuela is deteriorating as economic sanctions contribute to deepening the economic and political crisis. At the same time, the US government is expected to tighten sanctions on Iran’s oil sector in May.

“The disruption of electricity has further hindered production in Venezuela, which dropped by 290,000 barrels per day in March to 732,000 barrels per day. Against this background, production in Iran is stable at 2.7 million barrels per day, but the country may be further affected if the US limits its export volumes”, says the analysis of Jefferies Bank.

OPEC and its allies will meet in June to decide whether to extend the quota deal. If supply issues continue to rise, production may increase from July, although Saudi Arabia is willing to continue with cuts.

Meanwhile, The US oil and gas rig count dropped by eight on the week ending Wednesday to 1,090, according to S&P Global Platts Analytics. The oil rigs dropped by 10 to 867, while gas-directed rigs were up by one to 220. Rigs not classified as either oil or gas declined by one.

Since mid-November, the US rig count has gradually declined, losing 143 rigs from its recent peak of 1,233 as capital budgets inched down in the wake of oil price uncertainty and promises by oil companies to return more cash to shareholders.

IEA: The oil markets are tightening

World oil markets are tightening as OPEC supply shrinks, according to the International Energy Agency (IEA). The agency warns that can reduce demand forecasts due to various threats to the global economy.

Global supply dropped 340,000 barrels per day in March due to the OPEC-led production cut deal and a sharp drop in output at sanctions-hit Venezuela. OPEC production in March fell by 550,000 barrels per day to 30.10 million barrels per day, as Saudi Arabia’s output fell to its lowest level in two years, boosting compliance with supply cuts to 153%.

Crude oil inventories will decline by the end of the year due to the continuing cuts of production by Saudi Arabia and its partners. At the same time, the exports from Venezuela and Iran are pressed by an economic and political crisis. The IEA, however, notes that threats to the world economy, from Europe to emerging markets, may have an impact on fuel consumption.

“The oil market shows signs of tightening as the second quarter of the year approaches, but we see mixed signals about the prospects for demand”, said the IEA.

World oil supplies declined last month amid a sharp decline in OPEC production following the quota deal and higher then committed cuts by Saudi Arabia At the same time, the situation in Venezuela is getting worse. The growth of supply outside OPEC has also slowed down as Canada has reduced production in the North Sea.

As a result of the OPEC’s efforts, oil inventories in developing countries are below their five-year average, falling in February for the first time in four months. However, IEA’s concerns are related to demand.

The agency, however, currently retains its forecast for global oil consumption growth in 2019, expecting an increase of 1.4% or 1.4 million barrels per day.

“Consumption in developed countries declined in the fourth quarter of 2018 for the first time since 2014. In addition, there are still concerns about the trade dispute between the US and China, restoring demand in the Middle East remains modest, and weakness in European countries may worsen”, commented the IEA.