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Oil prices kept their footing on positive grounds on Tuesday, as markets tightened on the Organization of the Petroleum Exporting Countries’ (OPEC) continuous effort to trim output and the upcoming US sanctions against Iran.

International benchmark Brent crude futures for the July delivery rose by 0.8 percent to $78.93 per barrel, marking a new high after hitting a 3-1/2 year high of $78.53 during the previous session.

June contract US West Texas Intermediate (WTI) oil futures climbed 0.5 percent to $71.38 per barrel, also not far from its November 2014 high of $71.89 reached last week.

The upcoming restored US limits against OPEC-member Iran and robust demand for oil are what currently keeping prices well supported, according to analysts.  

OPEC Output Cuts Tighten Oil Market

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The support for crude came as markets tightened due to OPEC’s efforts to curb inventories to raise oil prices.

The tightening market has just about solved the global supply overhang that has weighed down oil prices between 2014 and 2017.

OPEC data presented on Monday showed that crude stockpiles from members of the Organization for Economic Co-operation and Development (OECD) was down to 9 million barrels above the 5-year average and lower than the 340 million barrels above the average in January 2017.

Investment analyst William O’Loughlin said Saudi Arabia’s and the rest of OPEC’s dedication to cut production is a huge factor in maintaining oil prices at the moment, as well as the potential for less exports from Iran because of the sanctions.

Crude prices have been on edge since US President Donald Trump’s decision to exit the country from the Iran nuclear deal, raising the odds of a dispute in the Middle East and creating uncertainty over oil supplies worldwide.

Iran currently provides approximately 4 percent of global crude supplies and is the third-biggest manufacturer in the OPEC.

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.

Commodities portfolio manager Greg Sharenow stated that any reduction in Iranian supply might worsen market deficits, which would suggest upward pressure on pricing. Sharenow also estimated oil to go beyond the $80 level in the short term.

Minister of Oil and Gas of Oman Dr. Mohammed bin Hamad Al-Rumhi noted that the oil market still has an excess stock, but it is close to reaching a balance.

Further US drilling for new outputs put a lid on prices, with US drillers establishing 10 oil rigs in the week to May 11, raising the total count to 844, the highest level since March 2015.

The possibility of a shortfall in crude supplies should be able to support prices, along with the tight market, which may be known from the American Petroleum’s (API) oil stockpile report later in the day and on data from the Energy Information Administration (EIA) that is due to be released on Wednesday.

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