Oil prices top $80/barrel during Thursday trading on Iran concerns

oil prices
Oil prices hit $80/barrel during trading on Thursday for the first time since November 2014 on concerns that an already tightening market would be impacted by the Trump administration's decision to abandon the Iran sanction relief agreement.  Apache photo.

Oil prices hit $80/barrel during trading on Thursday for the first time since November 2014 on concerns that an already tightening market would be impacted by the Trump administration’s decision to abandon the Iran sanction relief agreement.  Apache photo.

Oil prices rise alongside geopolitical concerns

Oil prices topped $80/barrel during trading on Thursday as investors grew more concerned about US sanctions on Iran that could reduce crude supply in an already tightening market.

Benchmark Brent finished the session up 85 cents to $79.28 after topping $80.33/barrel earlier in the day.  US WTI finished the day 18 cents at $71.49/barrel.  The Canadian Crude Index dipped 3 cents to $51.05.

Dwindling supply from Venezuela and the Trump administration’s decision to opt out of the Iran sanction relief deal, which would result in lower crude exports from OPEC’s third-largest producer, has concerned some analysts.

Gene McGillian, vice president of research at Tradition Energy told Reuters “we are going to have reduced supplies from Iran in six months and Venezuela hasn’t shown that they can stop the drop in their supplies”.

And on Wednesday, Total warned that it may abandon a planned multibillion-dollar gas project in Iran if it could not secure a waiver from US sanctions.  This caused more doubt that European-led efforts could save the sanctions relief agreement.

Venezuela is currently embroiled in an economic and social crisis and a sharp drop in oil production has deepened the South American country’s woes.

“The geopolitical noise and escalation fears are here to stay,” Norbert Rücker, head of macro and commodity research at Swiss bank Julius Baer told Reuters. “Supply concerns are top of mind after the United States left the Iran nuclear deal.”

In recent months, global inventories of crude oil and refined products have dropped, mostly due to OPEC’s supply cut agreement.  Participants agreed to reduce their total production by 1.8 million barrels per day (b/d).

Crude stocks are expected to drop even more as the US summer driving season begins.  The boost in consumption will help offset rising US shale production, according to Bernstein analysts.

According to Reuters, recently several banks raised their oil price forecasts due to tighter supplies and strong demand.

As well, on Thursday, Shell said it will halt crude exports from a major Nigerian pipeline.  The announcement also underpinned oil prices.

The International Energy Agency said on Wednesday that global crude demand growth will be less than anticipated.  Oil demand growth is expected to hit 1.4 million b/d, down from an earlier forecast of 1.5 million b/d.

High US crude production also concerned analysts as oil output jumped by 27 per cent in the last two years and now sits at a record high of 10.72 million b/d.

The high supply of US oil has resulted in a widening discount between US WTI and benchmark Brent.  On Thursday, WTI traded $8.20 below Brent, the biggest discount since April 2015.





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