Brent hits six-week high as U.S.-Saudi talks raise risk for Iran
SEOUL and LONDON (Bloomberg) -- Brent crude extended gains as investors assessed geopolitical risks, with speculation that the U.S. president and Saudi Arabia’s crown prince discussed countering the influence of Middle East producer Iran.
Futures rose as much as 1.2% to a six-week high, after advancing 2.1% on Tuesday. Donald Trump hinted at withdrawal from a deal curbing Iran’s nuclear program as Saudi Arabia’s Mohammed Bin Salman began a U.S. visit. Such a decision would raise the risk of the OPEC member’s oil exports being curtailed by sanctions.
The specter of conflict involving giant producers is jolting prices, which have traded in a tight range since February. With OPEC and its allies concluding that the market will rebalance by the end of September, Citigroup predicts oil’s recent “sideways” move is unlikely to last. Still, investors will be wary of growth in U.S. supply, which has threatened to undermine OPEC’s efforts to eliminate a global glut.
“The possibility of new sanctions on Iran has been the main issue in recent days,” said Carsten Fritsch, an analyst at Commerzbank in Frankfurt. “Oil sanctions against Iran would have a greater impact in an undersupplied market than in an oversupplied one.”
Brent for May settlement rose as much as $0.82 to $68.24/bbl on the London-based ICE Futures Europe exchange, the highest intraday price since Feb. 5. The contract traded at $68.10. The global benchmark crude traded at a $3.95 premium to WTI.
WTI for May delivery advanced $0.61 to $64.15/bbl on the New York Mercantile Exchange. Total volume traded was about 30% below the 100-day average. The April contract expired Tuesday after climbing 2.2% to $63.40, the highest close for front-month futures since Feb. 26.
If Trump decides to exit the international accord under which sanctions on Iran were eased in return for curbs on its nuclear program, Saudi Arabia, which regards the deal as a boon for its regional foe, would likely welcome the move. The resumption of sanctions could reduce oil exports from the Persian Gulf state by 250,000 to 500,000 bpd by the end of this year, industry consultant FGE said last week.
In the U.S., the API was said to report that nationwide crude stockpiles tumbled 2.74 MMbbl last week. That would be the largest decline since early January if confirmed by the EIA, scheduled to release the data later Wednesday. A Bloomberg survey shows inventories probably moved the other way, climbing by 3.25 MMbbl.
Oil Market News
OPEC and its allies held further discussions about changing the way they measure the impact of their production cuts, including proposals that would affect how quickly they reach their target, according to delegates from the group. A “tidal wave” of bullish news -- including falling oil stockpiles following winter and after seasonal refinery maintenance, possible U.S. sanctions on Iran and Venezuela, as well as sustained OPEC-led output curbs -- is seen hitting the market in the not-so-distant future, FGE said in a note. Gasoline futures gained 0.6% to $1.9769/gal after adding 2.1% on Tuesday.
