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Crude oil prices stabilized on Wednesday with market returning to balance

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Crude oil prices stabilized on Wednesday, backed by the drop of OPEC’s supply, US sanctions against Iranian and Venezuelan oil exporters, but pressure comes from the gloomy IMF forecast for the global economic growth, which may soon worsen fuel consumption and demand.

The futures on US crude oil WTI rose by 0.44% to 64.26 USD per barrel. The Brent increased by 0.33% to 70.84 USD per barrel.

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Overall, the crude oil markets are tightened this year because of US sanctions against Iran and Venezuela, as well as by OPEC+ quota deal. As a result, Brent and WTI futures have risen 30% and 40% respectively since the beginning of the year.

The global oil market is clearly returning to balance thanks to the contraction in the OPEC production, which dropped by 1.98 million barrels per day from October levels. The analysts, however, account that the US sanctions against Iran and Venezuela also have an effect on the market.

According to an analysis of the Dutch bank ING, the crude oil production in Venezuela has dropped from 1.19 million barrels per day in October to 0.89 million barrels per day in March, while production from Iran has fallen from 3.33 million barrels per day to 2.71 million barrels per day. Thus, 47% of the OPEC’s cuts come in fact from the two countries affected by sanctions countries.

Meanwhile, ANZ Bank said on Wednesday it expected Brent’s prices to be pushed to a level of 79 USD per barrel.

US oil inventories and prouction

The US oil production grew by more than 2 million barrels per day since early 2018 to a record 12.2 million barrels per day.

The crude oil production is expected to rise by 1.43 million barrels per day in 2019 to average 12.39 million barrels per day, according to the Energy Information Administration (EIA), up from its previous forecast for a rise of 1.35 million barrels per day.

Output in 2020 is forecast to rise by 710,000 barrels per day to 13.10 million barrels per day, a smaller increase than the EIA previously estimated.

The latest forecast puts the US back on track to reach the 13-million barrels per day milestone by the second quarter of 2020.

Meanwhile, the US oil inventories rose by 4.1 million barrels to 455.8 million barrels in the week ending April 5, according to data from the American Petroleum Institute. Including this week’s data, the net build is now 7.53 million barrels for the 13-week reporting period so far this year, using API data.

The institute reported a draw in gasoline inventories for the week ending April 5 in the amount of 7.1 million barrels. Analysts estimated a much smaller draw in gasoline inventories of 2.009 million barrels for the week.

Distillate inventories decreased by 2.4 million barrels, compared to an expected draw of 1.3 million barrels for the week.

Crude oil inventories at the Cushing, Oklahoma facility fell by 1.3 million barrels for the week.

Global crude oil demand

There are fears that a slowdown in the global economy may soon have an impact on fuel consumption and crude oil demand.

The International Monetary Fund warned on Tuesday that the world economy is slowing more than expected. In the third downgrade of its forecasts since October 2018, the IMF said the world economy is likely to grow by 3.3% this year, the slowest growth rate since 2016. Expectations are down by 0.2 percentage points from the January’s estimates by the IMF.

For 2019, the EIA forecast US oil demand to rise by 360,000 barrels per day to 20.81 million barrels per day, unchanged from its previous estimate.

The agency also estimates US oil demand will rise by 250,000 barrels per day in 2020, up from a previous forecast of a 220,000 barrels per day increase.

The EIA also released its summer fuels outlook, in which it estimated the United States will be a net exporter of gasoline, including blending components, from April through the end of September this year for the first time since 1960. The outlook expects US exports of gasoline to average about 90,000 barrels per day during the period.