Oil prices hit $71, but retreat Tuesday on Middle East tensions

Oil prices hit $71/barrel on Tuesday due to OPEC’s supply cut pact and growing tensions between Saudi Arabia and Iran.  As the session continued, oil prices retreated and settled in close to Monday’s values.  Apache photo.

Oil prices reined in by rising global output

Early in Tuesday trading, oil prices hit $71/barrel on concerns about rising tensions in the Middle East that could impact supply from the region, however, prices retreated as the session continued.

By 1:49 p.m. EDT, benchmark Brent down 3 cents to $69.49/barrel and US WTI dipped 23 cents to $65.32/barrel.  The Canadian Crude Index was down 3 cents to $44.55.

So far this month, oil prices are up over 7 per cent and, for the first three months of 2018, have risen 5.3 per cent.  Crude prices are on track for a third consecutive quarterly gain, something not seen since late 2010.

Propping up oil prices early in the session was the US dollar, which recovered from earlier lows on Tuesday and erased some gains in oil.

OPEC’s supply cut agreement is still helping boost oil prices, but analysts are concerned that rising production led by the United States could have a negative impact on oil prices.

“For oil, we expect the supply deficit of the past couple of quarters to give way to a surplus, driven largely by strong growth in U.S. tight oil supply,” Reuters reports Barclays Research analysts said in a note.

“Supply risks in Venezuela and Iran may perk up the patient, but we do not expect them to change the market balance significantly,” they wrote.

The OPEC supply cut deal has been extended from its original exit date of June 2017 to the end of 2018.  Russia and Saudi Arabia are working on a longer-term deal that would see the two oil superpowers and other major exporters participating in the pact continue to curb their production for years to come.

Oil prices were also supported on Tuesday under the Trump administration’s threat to withdraw from the 2015 Iran nuclear deal.  Should the US bail on the agreement, more sanctions could be imposed on Tehran, reducing oil exports.

But, analysts caution that rising supplies from non-OPEC countries could prevent the oil market from rebalancing.

“The recent rally in oil prices might have taken some by surprise as the underlying fundamental picture does not justify Brent being close to $70 a barrel. This view is based on the simple fact that non-OPEC oil supply growth will trump the increase in global oil demand this year,” PVM Oil Associates analyst Tamas Varga told Reuters.

Since 2016, US production has increased by nearly 25 per cent to over 10 million barrels per day and now is second only to Russia’s output.