Oil set for weekly gain as U.S. imposes new Iran sanctions
NEW YORK (Bloomberg) -- Oil headed for a third weekly gain as the U.S. imposed fresh sanctions on Iran after a missile test and OPEC reached about 60% of its output-cut target.
Futures rose as much as 1.3% in New York. The new restrictions were announced as President Donald Trump seeks to punish Tehran for its ballistic missile program after warning the Islamic Republic that it is “playing with fire.” The Organization of Petroleum Exporting Countries cut output by 840,000 bpd last month, according to a Bloomberg survey.
"This is a knee-jerk reaction," Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Mass., said by phone. "Whenever there are headlines that have something to do with the Persian Gulf you will see a response in the market."
After posting the biggest annual gain in seven years in 2016, oil has fluctuated in the mid-$50s in a tug of war between OPEC cuts and signs of recovering U.S. output. While producers from Saudi Arabia to Angola have implemented cuts and Russia says it’s ahead of schedule with its own reduction, wary investors are also considering signs that U.S. shale drillers are boosting activity.
West Texas Intermediate for March delivery increased 38 cents, or 0.7%, to $53.92/bbl at 11:21 a.m. on the New York Mercantile Exchange. Total volume traded was about 26% below the 100-day average. Prices are up about 1.4% this week.
Brent for April settlement rose 44 cents, or 0.8%, to $57/bbl on the London-based ICE Futures Europe exchange. The global benchmark traded at a $2.42 premium to April WTI.
OPEC reduction
OPEC pumped 32.3 MMbopd last month, according to the Bloomberg survey. The 10 members of the group that pledged to make cuts implemented 83% of those reductions on average, but their efforts were offset by gains from Iran, Nigeria and Libya.
Accounting for the members who raised output and the suspension of Indonesia, OPEC’s total production remains 550,000 bpd above the target set out in the Nov. 30 deal. That means the group as a whole is only about 60% of the way toward the level it deems necessary to eliminate the global surplus and boost prices.
