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Our market view – week 25

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Reduced oil demand and a boom in supply offset Iran supply risks.


In less than two weeks, the EU sanctions against Iran will be implemented. In addition to the EU import ban, vessels carrying Iranian crude will lose access to the London-based insurance market that protects 95% of the world’s tanker shipments. This may affect exports, resulting in lower than expected Iranian exports. Market participants may, however find ways to deal with sanctions. Japan, which now buys around 20% of Iran’s exports, is expected to approve government guarantees to insure shipments from Iran. No other country has announced similar arrangements.
Europe’s debt crisis is reducing oil demand. IEA last week lowered its 2012 demand growth to 0.8 mbd.

Reduced demand, strong growth in US crude production and near-record Saudi oil production is currently seen more than sufficient to offset the estimated drop in Iranian exports.

US crude oil production in the first quarter of 2012 was the highest in 14 years. From October 2011 to March 2012 production grew by 6%.


OPEC in its meeting last week agreed to adhere to its 30 mbd output ceiling. Output was at 31.9 mbd in May with Saudi oil production at near record high of around 10 mbd. OECD stocks are on track to build on average 1.8 mbd in the first half. If OPEC maintains production at its current level, stocks will continue to build through the second half.



Weak demand outlook pressure gas prices
Gas prices are likely to remain under pressure over the summer.
Gas use in power generation is weak. UK coal-fired electricity output is up by around 40% from last year, while strong wind and solar generation in Germany lowers both coal and gas use.


Bildetekst fig 4: NBP Day-ahead price, p/th (Source: Reuters)