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Oil trades near four-year high as US raises pressure on OPEC

Oct 04 2018 12:39
Grant Smith, Bloomberg

Oil traded near a four-year high as the US urged OPEC to raise production amid growing alarm that American sanctions against Iran will squeeze global markets.

West Texas Intermediate futures have climbed 4% this week, and remained above $76 a barrel on Thursday. The US State Department said it has encouraged the Organisation of Petroleum Exporting Countries “to utilize their spare capacity to ensure world supply meets demand,” just hours after Saudi Arabia - OPEC’s biggest member - said it was pumping near-record levels.

Yet traders remain unconvinced there’s enough supply to fill deepening losses in Iran.

Oil has rallied about 16% since mid-August on fears of a global supply crunch, prompting US President Donald Trump to repeatedly demand that OPEC takes action to lower prices. While Saudi Arabia and Russia could pump more, traders continue to speculate whether OPEC and allied producers can offset a supply loss in Iran and declining production in Venezuela.

The “market reaction shows spare capacity is moving to a precariously low point,” Jason Gammel, an analyst at Jefferies, said in a Bloomberg television interview. “One-hundred dollars is a realistic possibility.”

West Texas Intermediate for November delivery slipped 23 cents $76.18 a barrel on the New York Mercantile Exchange at 11:40. The contract climbed $1.18 to $76.41 on Wednesday, the highest since November 2014. Total volume traded was about 24% below the 100-day average.

The Relative Strength Index for WTI topped 70 earlier this week for the first time since late June, signaling to some that the rally may be overdone.

Brent for December settlement fell 0.4% to $85.97 a barrel on the London-based ICE Futures Europe exchange. Prices rose 1.8% to $86.29 on Wednesday, the highest level since October 2014. The global benchmark crude traded at a $9.96 premium to WTI for the same month.

With a looming November deadline to comply with renewed US sanctions, Iran’s customers are increasingly being scared away. Iranian condensate cargoes to state-owned Emirates National Oil dropped by half in September, while customs officials in the United Arab Emirates are said to require oil tankers docking at Fujairah’s fuel terminal to provide a certificate attesting to the origin of their cargoes.

Saudi Arabia and Russia signaled they are doing their part to mitigate the loss. The two countries are pumping an extra 1 million barrels a day after OPEC and its allies in June pledged to boost production. Russia, which already broke its post-Soviet output record last month, could add another 200 000 to 300 000 barrels a day of supply within a “few months” while Saudis suggested the kingdom may produce more in November than about 10.7 million barrels a day this month.

Meanwhile, US crude inventories rose 7.98 million barrels last week, the biggest gain since March last year, the Energy Information Administration reported. Stockpiles were forecast to have risen 1.5 million barrels in a Bloomberg survey of analysts before the EIA data was released on Wednesday.

The bearish US inventory data “was overshadowed by various reports pointing to declining exports from Iran,” JOGMEC’s Nogami said.

Other oil-market news Oil buyers who viewed Obama-era policies as precedent for US sanctions on Iran are getting a rude  shock. Russian President Vladimir Putin said his American counterpart’s Iran sanctions are largely to blame for current high oil prices.

The US government encouraged OPEC to utilise its spare capacity to ensure supply.

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commodities  |  markets  |  oil
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