Oil prices flat as IEA warns of output capacity limits

Investment bank UBS expects Brent to reach $85 per barrel over the coming three and 12-month period

Investment bank JP Morgan on Friday raised its outlook for oil prices, but lowered its forecast for global crude demand-growth this year amid increasing uncertainty over worldwide trade.

The organization expects production from the U.S. and other non-OPEC members to increase by 2.1 million bpd next year, meaning the world will need about 32.2 million bpd from OPEC, or roughly 800,000 fewer bpd than the average in 2018.

The comments underline the still-simmering tensions after OPEC's meeting last month, when the group agreed to return to full compliance with earlier agreed oil output cuts, after months of underproduction by OPEC countries including Venezuela.

"With Venezuela and Iran already subject to sanctions and United States onshore production and exports now limited by infrastructure, one of the US's most significant remaining market levers is its Strategic Petroleum Reserve", Rigby said. But they alone can not carry the burden of keeping the oil market stable.

A report was released by the U.S. government, stating that the stockpiles of the American crude oil have dropped by approximately 12 million barrels.

Supply to the US market has also been squeezed by the loss of some Canadian oil production.

In the previous week, the USA government quietly asked Saudi Arabia and some other Organization of the Petroleum Exporting Countries (OPEC) producers to increase oil production by about 1 million barrels a day, aiming at curbing oil prices hiking.

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Libya might be able to boost export sales by up to 400,000 barrels a day, which is it happens would help offset lower production from Venezuela.

JP Morgan said it expected global oil supply to remain robust despite short-term disruptions, forecasting OPEC supply in 2018 at about 32.9 million bpd.

The reopening will allow the return of up to 850,000 barrels per day of high quality crude oil to worldwide markets.

"We think it would highlight the structural tightness of the market and the lack of options available to deal with it", he added.

The IEA said Iran's crude exports could be reduced by significantly more than the 1.2 million bpd seen in the previous round of global sanctions.

Indeed, following Wednesday's OPEC report forecast confirming a decline in world demand for crude due to slowing consumption (OPEC-related demand estimated at 32.18 million bpd, a drop of 760'000 bpd compared to current year) and higher production from rivals, investors' opinion drastically changed, causing a rapid selloff of the commodity. We warned about the massive drop in cap x years ago and now we are feeling the impact, Good news on that front. They averaged $2.89/gal in June, down 1 cent from May.

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