Oil prices end session up on Iran sanctions concerns, other supply worries

oil prices
Oil prices settled the day higher on Thursday as concerns about supply shortfalls due to the Trump administration's sanctions on Iranian crude exports and production disruptions in Canada, Libya and Venezuela. Shana.ir photo.

Oil prices settled the day higher on Thursday as concerns about supply shortfalls due to the Trump administration’s sanctions on Iranian crude exports and production disruptions in Canada, Libya and Venezuela.  Shana.ir photo.

US oil prices hit highest level since November 26, 2014

On Thursday, oil prices rose on investors and analysts’ concerns over supply shortages due to impending US sanctions on Iranian crude along with supply disruptions in Canada, Libya and Venezuela.

West Texas Intermediate crude futures settled the day up 69 cents to $73.45/barrel, down from a session high of $74.03/barrel, the highest since Nov. 26, 2014.

Benchmark Brent crude futures rose 23 cents to settle at $77.85/barrel.  The Canadian Crude Index was down 4 cents to $48.62.

The increase in oil prices is mostly due to the looming Trump administration sanctions on Iranian crude.  The United States is reimposing sanctions on Iran after President Trump abandoned the Iran sanction relief agreement that had been signed by former President Barack Obama in 2015.

On Thursday, State Department officials said they would work on a case-by-case basis with countries that purchase Iran’s crude and may find meeting the November cut-off date difficult.  The Trump administration is calling on its allies to halt all purchases of Iranian crude by November 4.

As yet, China has not committed to the US position.  China was one of the signatories to the Iran deal and has recently been embroiled in a mounting trade dispute with the United States.

“The sanctions are trying to isolate Iran a bit more, and that potentially cuts more oil off from the overall global arena as a whole,” Mark Watkins, a regional investment strategist at U.S. Bank Wealth Management told Reuters.

“If you’re having Iran’s oil taken off the market, then you have a decrease in supply and by all means, that’s going to put more pressure on the price of oil to move up.”

A power outage at the Syncrude plant in the Alberta oil sands has shuttered the 350,000 barrel per day (b/d) operation and officials report the plant will not be online through July.  A civil war in Libya has undermined the African nation’s oil industry and the ongoing social and economic crisis in Venezuela has severely impacted its crude supply.

On Wednesday, market intelligence firm Genscape reported crude inventories at the Cushing, Oklahoma, delivery hub dropped by 3.1 million barrels last week.

As a result, front-month WTI’s premium to the second month jumped after the data was released and hit a session high of $1.81.  US crude’s discount to Brent fell to the narrowest in three months, hitting $3.92/barrel.

“You look at the front spreads for crude oil, and it’s been the front-month contracts that have blown out, almost like this is a knee-jerk reaction to a headline versus a long-term structural uptrend that is still intact,” Brian LaRose, senior technical analyst at ICAP-TA told Reuters.

Rising US crude production, which is now nearing 11 million b/d, along with Saudi Arabia’s pledge to increase its output are easing some concerns about a supply shortage.

However, many analysts say the market does not have much spare capacity to handle further disruptions.

“With inventories still declining and spare capacity uncomfortably low, there is very little cushion for any supply disruption caused by rising geopolitical risks,” ANZ bank said.

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