Oil prices drop further despite OPEC cuts and Iran sanctions

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The IEA said global oil demand would average 99.2-million bpd in 2018, although U.S. bank Goldman Sachs said consumption would cross 100-million bpd "this summer".

Asia's demand is at record highs and with rising prices its crude could cost $1 trillion this year, about twice what it paid during the market lull of 2015/2016.

If the U.S. were to force that amount of oil off the market again, it could turn a fast-shrinking surplus into a shortage and send prices higher and destabilise the careful balance of supply and demand that both Saudi Arabia and Russian Federation are trying to achieve.

"Not yet", said another delegate, asked whether oil at US$79 was too high. Prices could rally further before declining, according to some in OPEC.

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.

Energy economist Phil Verleger says "we could be in store for the greatest market price disruption ever" and sees Brent possibly reaching $120 this summer.

A majority of analysts said OPEC was unlikely to prematurely end its output curbs, while some analysts said the imposition of trade restrictions could affect compliance levels and provide countries like Saudi Arabia and Russian Federation an opportunity to regain market share.

"In these early days, there is understandable uncertainty about the potential impact on Iran's oil exports" because of United States sanctions, it said. 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.

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A senior official at Iran's state-owned oil supplier met Chinese buyers this week to ask them to maintain imports after USA sanctions kick in, three people familiar with the matter said, but failed to secure guarantees from the world's biggest consumer of Iranian oil. Although the group said its crude output inched up in the previous month, investors interpreted the minimal increase as a sign of OPEC's continued commitment to rebalancing the market, especially from its de facto leader Saudi Arabia. The glut that had weighed on prices for the past three years has finally been eliminated, thanks to strong demand and output cuts by other producers in OPEC, the International Energy Agency said on Wednesday.

More than half of the total oil rigs are in the Permian Basin in West Texas and eastern New Mexico, the nation's biggest shale oil field.

The U.S.' answer to high prices is to drill, baby, drill.

Growth in USA output, meanwhile, has tamed price moves for US benchmark crude in recent sessions, preventing it from notching a fresh multiyear high.

Mihir Kapadia, CEO and founder of Sun Global Investments, agrees that geopolitical tensions are driving energy prices higher, with unrest is building in Venezuela ahead of this weekend's presidential elections.

Oil stocks were expected to drop further as peak summer driving season nears, offsetting increases in USA shale output, said analysts at Bernstein. "World oil demand is expected to average 99.2 mb/d in 2018".

At the same time, China's domestic crude oil production has been languishing near June 2011 lows in the first quarter this year, prompting higher imports to meet growing demand.