New York futures gained as much as 0.9%, after advancing 3.6 % on Tuesday. Renewed US sanctions that may curb OPEC member Iran’s exports, a Canadian oil-sands outage and turmoil in Libya have lifted prices. While Saudi Arabia is said to plan ramping up production, a move that would strain the kingdom’s spare capacity at a time when the market is already coping with falling Venezuelan output and shrinking American inventories.
Crude is approaching the highs of May as a decision by the Organization of Petroleum Exporting Countries and its allies — including Russia — to boost output by 1 million barrels a day is seen “ a little short” of what’s required to ease supply concerns. US President Donald Trump’s administration is demanding that Iran’s oil customers end imports by a Nov 4 deadline and doesn’t want to offer any extensions or waivers to that timeline, as it targets the Persian Gulf state’s economy with sanctions.
“We find ourselves in a period of erratic global politics that injects a considerable amount of volatility,” said Norbert Ruecker, head of the macro and commodity research at Julius Baer & Co. “The stage is set for further geopolitical confrontation.”
West Texas Intermediate crude for August delivery rose as much as 63 cents to US$71.16 a barrel on the New York Mercantile Exchange, and traded at US$71.11 as of 10.51 am London time. The contract rose US$2.45 to US$70.53 on Tuesday. Total volume traded Wednesday was about 8% below the 100-day average.
Brent futures for August settlement traded at US$76.45 a barrel on the London-based ICE Futures Europe exchange, up 14 cents. Prices on Tuesday added US$1.58 to close at US$76.31. The global benchmark crude was at a US$5.37 premium to WTI.
State oil company Saudi Aramco is aiming to increase supplies next month to about 10.8 million barrels a day, according to people briefed on the country’s output policy, following pressure from Washington to fill any supply gaps and alleviate high prices before the American midterm elections in November. The US administration wouldn’t rule out waivers or extensions to the November deadline for Iran’s customers, yet it isn’t discussing them either, said a State Department official.
“Saudi Arabia faces the daunting, if not impossible, task of managing the oil market. Prices are going to stay elevated,” said Victor Shum, a Singapore-based vice president at industry consultant IHS Energy. “The uncertainty over Iranian crude supply is going to cast a shadow over the oil market. The cut in supply may be even bigger than thought, depending on how successful the US is in getting countries not to buy Iranian oil.”
In Libya, uncertainties about its oil supplies intensified after forces loyal to Khalifa Haftar, a commander in the politically divided nation’s eastern region, turned over ports with a combined export capacity of 800,000 barrels a day to the National Oil Corp. in Benghazi, a city in the east. The transfer of ports including Libya’s biggest, Es Sider, threatened to unsettle markets just days after OPEC agreed to raise output.
A market structure known as backwardation persisted as WTI for August settlement was about US$1.30 higher than the September contract, signalling a shortage after a Syncrude Canada oil-sands outage. Meanwhile, Brent for near-term delivery was only about 20 cents higher than later cargoes, a much smaller premium than in the US market.
Crude prices were also supported by an American Petroleum Institute report that was said to show US inventories dropped by 9.23 million barrels last week, bigger than a 3 million-barrel drop in a Bloomberg survey. If that’s confirmed by Energy Information Administration data on Wednesday, it will mark a third week of declines.