Oil price weakens but still near 3-year high

E.A. Gibson Shipbrokers

Oil prices were little changed on Tuesday after Brent hit its highest level since November 2014, supported by strong demand, OPEC-led production cuts, and the prospect of renewed US sanctions on Iran. However, a return to US$100 remains a pipe dream.

Markets have been lifted by supply cuts, which were introduced in 2017 with the aim of propping up the market, led by the Organisation of the Petroleum Exporting Countries (OPEC). According to Verga, the market concern about what is going to happen between the USA and Iran is a major contributor to the current price hike.

S&P Global Platts associate editorial director for Asia and Middle East Energy News & Analysis Mriganka Jaipuriyar also concurred.

Oil prices will continue growing, Bloomberg reports with reference to hedge funds that invest in "black gold".

Gone are the days when governments lamented about low oil prices, and consumers grinned ear to ear that pump prices were really low. The increase was due a number of factors - the OPEC led initiative to cut production to reduce the global oil glut, strengthening demand for oil across the world and the possibility of the USA renewing its sanctions against Iran.


Crude prices had settled lower during Tuesday's trading session after hitting fresh highs, as talks between French President Emmanuel Macron and US President Donald Trump were seen as raising the odds of preserving the 2015 Iran nuclear agreement. While the Organization of Petroleum Exporting Countries and its allies concluded that they have all but wiped out a global crude surplus, fears remain that USA drillers may continue boosting output to record levels and offset the group's effort to balance the market. Currently, nationwide gasoline prices average $2.76 per gallon, and will likely rise in the coming weeks ahead of Memorial Day weekend when summer driving season begins.

"Not many companies on Bursa Malaysia have a direct exposure to the changes in oil price".

Indeed, one reason for the rally in prices since the middle of previous year is the fact that stocks have dropped by so much. After all, unlike most OPEC countries and Russian Federation, where oil production is controlled, either directly or indirectly, by the state, the US president has very little influence over how much crude the USA produces. However, higher oil prices have caused an immediate surge in mining investment, as more drilling rigs have been deployed, and those firms associated with oil production have seen revenue boom.

"Market sentiment is turning increasingly bullish towards the commodity", said Lukman Otunuga, research analyst at futures brokerage FXTM.

"If this current oil price level is sustained for at least the next six months, we can expect an even better outlook for O&G service providers as Petronas will make some upward revision to their current projects", he added.

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