Oil nears US$80 in London amid falling stockpiles and Iran risks

A worker walks past a pump jack on an oil field owned by the Bashneft company near Nikolo-Berezovka, Bashkortostan, Russia January 28, 2015. — Reuters pic
A worker walks past a pump jack on an oil field owned by the Bashneft company near Nikolo-Berezovka, Bashkortostan, Russia January 28, 2015. — Reuters pic

SEOUL, May 17 — Oil traded at a three-year high in London near US$80 (RM317) a barrel as US crude inventories fell and traders braced for the impact of renewed sanctions on Opec member Iran.

Brent futures added 0.7 per cent. US crude stockpiles slipped for a second week as the summer driving season approaches, government data showed on Wednesday. Goldman Sachs Group Inc. said America’s surging shale output won’t be able to replace the potential drop in Iranian oil shipments after the US reimposed sanctions on Opec’s third-largest producer.

Crude has rallied this month to the highest level in more than three years after US President Donald Trump withdrew from a 2015 pact between Iran and world powers that had eased sanctions on the Islamic Republic in exchange for curbs on its nuclear programme. While the International Energy Agency said a global glut’s been eliminated thanks to output curbs by Opec, it warned high prices may hurt consumption and cut forecasts for demand growth.

“Supply concerns are top of mind after the US left the Iran nuclear deal,” said Norbert Ruecker, head of macro and commodity research at Julius Baer Group Ltd. in Zurich. “The geopolitical noise and escalation fears are here to stay.”

Brent for July settlement rose 53 cents to US$79.81 a barrel on the London-based ICE Futures Europe exchange at 10.22am local time, after adding 1.1 per cent yesterday. The global benchmark crude traded at a US$7.76 premium to WTI for July.

West Texas Intermediate crude for June delivery traded at US$72.08 a barrel on the New York Mercantile Exchange, up 59 cents. The contract climbed 18 cents, or 0.3 per cent, to US$71.49 yesterday. Total volume traded was in line with the 100-day average.

Futures for September delivery on the Shanghai International Energy Exchange gained 1.9 per cent to 481.9 yuan a barrel, rising for a third day.

US crude inventories fell 1.4 million barrels last week, while domestic production rose to 10.7 million barrels a day, the Energy Information Administration said on Wednesday. The spectre of surging American output, which has topped 10 million barrels a day every week since early February, continues to place a cap on prices and undermine Opec’s output cuts. Gasoline stockpiles also shrank last week by 3.79 million barrels, the EIA reported.

Members of the Organisation of Petroleum Exporting Countries, including Saudi Arabia, Kuwait and the United Arab Emirates, said they have enough capacity to fill in any supply gap if renewed sanctions curtail Iran’s exports. Still, Goldman Sachs said the group won’t proactively replace the lost barrels, given its current narrative that the market isn’t fully re-balanced.

Even the US won’t be able to offset Iran’s shipments because shale producers are facing “growing pains” as record production has caused bottlenecks in the nation’s pipelines, Goldman analysts including Jeffrey Currie wrote in a May 16 note.

Oil-market news:

Gasoline futures were up 0.3 per cent at US$2.22560 a gallon, after gaining 2.1 per cent yesterday. Since the European Union is unlikely to follow the US in re-imposing sanctions on Iran, the overall impact on the Persian Gulf state’s exports will be “far more muted” than in the past, tanker tracker Petro-Logistics said in a note. — Bloomberg