Oil Hits Six-Month High On Fears Over Iran Sanctions

By Glenn Dyer | More Articles by Glenn Dyer

Global oil prices have hit six-month highs after the US demanded that all buyers of Iranian oil stop purchases effective May 1 or face sanctions.

The move is designed to kill off Iran’s oil revenues sent crude prices to six-month highs on fears of a potential supply crunch.

To try and alleviate that crunch, the Trump administration claims it has done deals with Saudi Arabia and the UAE to ensure the oil market was “adequately supplied.”

But in a statement issued on Monday the Saudi Arabian Energy Minister Khalid al-Falih, failed to commit to raising production, merely saying it was “monitoring the oil market developments” after the US statement, and that it would coordinate with other oil producers to ensure a balanced market.

OPEC is next scheduled to meet in June.

Brent crude futures, the global benchmark rose to more than $US74 a barrel on Monday, the highest since November, while the price of West Texas Intermediate (WTI), the US benchmark hit a peak of $US65.92 a barrel, the highest since October 2018.

WTI closed at $US65.73 a barrel, up 2.6% while Brent settled at $US74.14, up 2.99%.

Iran’s eight main buyers – China, India, Japan, South Korea, Taiwan, Turkey, Italy, and Greece were given exemptions allowing them limited purchases for six months from when the sanctions were imposed last year.

The rise came after the long Easter holiday break which saw West Texas Intermediate futures benchmark post its seventh weekly rise in a row—the longest streak of weekly gains in the past five years.

The US move will further boost prices as oil markets have tightened sharply this year because of supply cuts from OPEC, Russia and several other producers, and output problems from Libya, Venezuela (which is facing US sanctions) and Nigeria.

As a result, Brent prices have risen by more than a third since January, and WTI by more than 40%.

Analysts said they expected the Trump administration to push OPEC and its leader Saudi Arabia to end their production cap and allow output to rise to put a lid on prices.

The production cap agreed to by OPEC, Russia, and others are due for re-negotiation in June.

And there is a slowly emerging belief that the surge in US production has run out of steam, even though prices have rebounded sharply. US production at best will only add 400,000 barrels of new output by the end of the year (an average of 12.4 million barrels a day).

At the moment production is running at around 12.1-12.2 million barrels a day. Active US drilling rig numbers are also falling and are close to a year low.

Baker Hughes reported on Thursday that the number of active US rigs drilling for oil fell by eight to 825 last week, following two consecutive weekly increases. The data were released a day earlier than usual ahead of Good Friday.

On Thursday, West Texas Intermediate crude for May delivery rose 24 cents, or 0.4%, to settle at $US64 a barrel in New York for a small gain for the holiday-shortened week of 0.2%.

June Brent crude futures added 35 cents, or 0.5%, to $US71.97 a barrel in Europe. Brent gained 0.6% for the week, its fourth consecutive weekly rise.

There’s another, bigger rise coming this week.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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