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Oil briefly hit $80 for the first time since 2014

17 May 2018

Non-OPEC supply capex down 42 percent from 2014.

There are several ways to play higher oils prices.

The "outlier", as has been the case for the past few years, is the US tight oil industry, where investments rose by more than 42% y/y in 2017, to about $138 billion. Goldman Sachs analysts estimate that Brent will average $82.50 in the coming months, with price risks "skewed to the upside".

The Saudis want that sweet Saudi Aramco IPO cash and need $100 oil to get there. A CNBC commentator said hitting the 2008 all-time high of $147 is possible. Speculators continued to support the market due to a tightening supply situation. The market is now trading on the bullish side of this zone.

IEA officials stressed that crisis-hit Venezuela was another risk to the global oil supply.

Oil's gains this week have been driven by news out of OPEC on Monday that it is cutting production by more than is required to do so under the terms of a 2017 agreement.

"According to preliminary supply data for 1Q2018, the combined liquids supply in the US and Canada increased by 1.8 million b/d y/y", said MOMR.

On the supply side, Iran's impact on the global oil market has yet to be quantified or seen.

Washington has given companies 90 to 180 days to wind up contracts with Iran and banned them from signing new ones, under threat of sanctions.

Do Saudi Arabia and its Gulf allies have enough spare capacity to stabilize the market? The International Energy Agency on Wednesday warned that demand could be sapped by higher-than-expected prices.

Catchy slogans can fire people's imagination and sometimes leads to significant policy shifts, as was the case with the Republican Party's support for USA shale, coal and other conventional energy production. That suggests demand won't suddenly fall off of a cliff.

Analysts project that oil exports from Iran could be reduced by about 0.5 million barrels a day as South Korea and Japan trim their imports, said analysts for J.P. Morgan in a recent report.

OPEC has over-delivered on the supply cut due in part to lower Venezuelan supply.

Crude oil prices are now slightly higher - both Brent and WTI are up today.

Physical crude markets are sagging under the weight of unsold barrels of oil, while the 50-percent rise in the oil price in the previous year is encouraging major companies such as ExxonMobil, Royal Dutch Shell, Chevron, BP and Total to increase output. The nation now produces 3.8 million bpd.

China's foreign ministry said last week it regretted the USA decision and called for parties involved to stick to diplomatic approaches to stay on track for full implementation of the 2015 accord.

This was the case with Drill, Baby, Drill the slogan, which proved to be popular and gained further prominence after it was used by Republican Vice Presidential nominee Sarah Palin in her debate with Joe Biden in the 2008 US Presidential elections.

More figures on USA oil output will be released separately by the EIA and International Energy Agency on Wednesday. There is one big difference now, of course-shale's massive growth.

US crude stockpiles slipped for a second week as the summer driving season approaches, government data showed yesterday.

As FXStreet's own Omkar Godbole noted, crude oil prices are likely headed for a technical break higher as Middle East tension continues to squeeze prices over time: "oil will likely see a bull flag breakout and rise towards major resistance at $74.93-$75.22 over the next couple of weeks". There's no guarantee that the Saudis will step in to increase production and make up for Iran's lost barrels-after all, the Kingdom has not expressed concerns over the declines in Venezuela.

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. While European buyers flag concerns over the financing issues of trade with Iran as a potential stop to buying Iranian crude, China is reassuring Tehran that it will continue to import its oil.

A surge to triple digits is not guaranteed, of course.

Oil briefly hit $80 for the first time since 2014