Gas prices rise as motorists make Memorial Day plans

Gas prices rise as motorists make Memorial Day plans

Oil prices rose to multiyear highs on Tuesday, bolstered by signs that major oil producers are still committed to reducing supply and the rising specter of US sanctions against Iran.

Oil and gas accounts for about 40 percent of the Saudi economy and cuts in crude oil production ate into real GDP growth by about 0.7 percent, even as the non-hydrocarbon sector grew by 1 percent a year ago. "Plus we see a high likelihood of OPEC working with Russian Federation in 2019 to set a floor on oil prices".

Still, crude prices were near more than three-year-highs reached last week as markets expect Iran's oil exports to fall significantly once US sanctions bite later this year.

It remains unclear how hard US sanctions will hit Iran's oil industry.

Once the sanctions are reinstated later this year, traders expect a massive decline from 200,000 to about 1 million barrels per day (bpd) in Iran's oil exports, which may put the already squeezed crude markets at risk of becoming undersupply.

"Germany has said it will protect its companies from US sanctions, Iran has said French oil giant Total has yet to pull out of its fields and all the while it seems the Chinese are ready to fill the void created by the U.S".

Since the accord was reached at the end of 2016, oil prices have climbed to their highest in almost four years to exceed $77 a barrel, up from $30 in early 2016. This is a sign that bulls are not trading with as much conviction as we saw following Trump's Iran decision.

Shortly after Trump's pullout announcement, a number of reports by Bank of America Corp suggested that the Iran-related move coupled with a dip in Venezuela's oil production will lay a heavy burden on global crude oil markets.

As of this writing, the oil companies that already advised on price increases include Flying V of the Villavicencio Group, Pilipinas Shell Petroleum Corporation, PTT Philippines, Chevron (which is carrying the Caltex brand) and Seaoil effective 6:00am on Tuesday; while the rest of the industry players are expected to follow the price adjustment trends.

"Plus we see a high likelihood of OPEC working with Russian Federation in 2019 to set a floor on oil prices", analysts wrote in their report.

The cartel's projected demand growth for 2018 is now 1.65 million barrels a day, also up by 20,000 since last month's report.

The prospect of a drawdown in crude stocks should be supportive for prices along with the tight global supply situation.

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