IEA warns global oil demand may suffer as crude nears $80

Saudi Arabia needs oil to go higher to pay for its enormous economic reform programme and to ensure it gets a good

Saudi Arabia needs oil to go higher to pay for its enormous economic reform programme and to ensure it gets a good

The difference between the two benchmarks briefly widened to more than $8 a barrel, the widest gap since April 2015, reflecting surging USA crude supplies and a greater geopolitical risk to Brent-based crudes. West Texas Intermediate was up 0.86% to $71.89 a barrel.

The bottleneck in North America likely contributed to a 4.9 million barrel rise in USA crude oil inventories, to 435.6 million barrels, that the American Petroleum Institute reported on Tuesday.

China's oil demand growth has so far this year exceeded expectations, and Goldman Sachs, for example, says that growth could be even "higher than now estimated".

Stronger oil prices are also spilling into other markets.

The world is now watching the growing tensions in the Middle East, and oil market analysts are guesstimating just how much Iranian oil supply the renewed US sanctions could stifle. China's crude oil imports in the first quarter increased by 7 percent on the year to around 9.09 million bpd-a rise of nearly 595,000 bpd on average compared to Q1 2017, according to Reuters calculations.

OPEC's success with the oil production cutting deal has been to a significant extent aided by Venezuela's catastrophically dropping production as the country grapples with foreign exchange shortage, USA sanctions, and a devastating economic crisis. Crude oil production in March was around 3.76 million bpd, flat compared with the average levels in January and February.

Now the United States has announced it will impose sanctions on Iran over its nuclear program, raising fears that markets will face shortages later this year when trade restrictions come into effect.

World supply, meanwhile, rose 1.78 million bpd in April from a year earlier, driven predominantly by non-OPEC production.

Senior oil and gas equity analyst Iain Reid at Macquarie Group said that the reason for the market being as tight as it is at the moment is due to Opec failing to "open the floodgates" to compensate for the lost Iranian barrels, but also the decline in production in Venezuela, another Opec nation. Concerns over the impact of USA re-sanctioning on Iran apart from other factors like economic crisis in Venezuela are keeping the oil prices high.

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