Oil settled higher Tuesday, with supply concerns tied to political unrest in the Middle East lifting prices for the global crude benchmark to its highest finish in 3½ years.
Growth in U.S. output, meanwhile, has tamed price moves for U.S. benchmark crude in recent sessions, preventing it from notching a fresh multiyear high.
On the New York Mercantile Exchange, June West Texas Intermediate crude
CLM8, +0.30%
added 35 cents, or 0.5%, to settle at $71.31 a barrel. It had settled at $71.36 on Thursday, its highest since Nov. 26, 2014.
July Brent crude oil
LCON8, -0.03%
the European and global benchmark, climbed by 20 cents, or 0.3%, to $78.43 a barrel, marking another finish on ICE Futures Europe at the highest since late November 2014.
Read: Here’s why U.S. oil is trading at its biggest discount to the global crude benchmark since 2015
“European and Asian buyers of Brent are pricing in the risks and realities of the fallout from sanctions on Iran to increased tensions in the Gaza strip, as well as the inability of traditional Brent oil producers to fill that void,” said Phil Flynn, senior market analyst at Price Futures Group.
‘The spread between [Brent and WTI] is basically Europe and Asia screaming for more oil from the United States to fill the potential void and feed their ravenous oil demand.’
The price spread between U.S. benchmark WTI and Brent has widened to more than $7 a barrel. “The spread between the two contracts is basically Europe and Asia screaming for more oil from the United States to fill the potential void and feed their ravenous oil demand,” he said.
“For WTI, while it is under performing at this point, it is not by any means bearish for the U.S. benchmark,” said Flynn. “The strong global demand for WTI will keep us supported, and even if some of the global risks get reduced, WTI will benefit from the unwinding of the Brent versus WTI spread that is reflecting most of the geopolitical risks.”
The Organization of the Petroleum Exporting Countries reduced its forecast for global oil production in its most recent report. Although the group said its crude output inched up in the previous month, investors interpreted the minimal increase as a sign of OPEC’s continued commitment to rebalancing the market, especially from its de facto leader Saudi Arabia.
Read: Two ways to play oil stocks while limiting your risk
“The Saudi’s are signaling that they would be relaxed with the scenario in which they temporarily over tighten the market,” said Paul Horsnell, the head of commodity research at Standard Chartered. “Coupled with no signs of new supply coming on, demand remaining strong as well as the geopolitical turmoil in Iran and you have the conditions for this push up towards $80” a barrel.
Turmoil in the Middle East and U.S. trade sanctions against major oil producer Iran have recently supported crude.
Analysts project that oil exports from Iran could be reduced by about 0.5 million barrels a day as South Korea and Japan trim their imports, said analysts for J.P. Morgan in a recent report.
Still, “we don’t expect China to reduce its imports of crude from Iran given their long-term signed contracts and the ability to pay in yuan,” said Abhishek Deshpande, the head of oil market research & strategy at J. P. Morgan.
U.S. shale oil production, meanwhile, is forecast to continue its climb. In a monthly report issued Monday, the Energy Information Administration said crude-oil production from seven major U.S. shale plays is expected to see a climb of 144,000 barrels a day in June to 7.178 million barrels a day.
More figures on U.S. oil output will be released separately by the EIA and International Energy Agency on Wednesday.
Analysts polled by S&P Global Platts expect the EIA Wednesday to report across-the-board weekly declines in petroleum supplies, with crude down 2.3 million barrels, gasoline seen down by 2 million barrels and distillates, which include heating, expected to fall by 1.3 million barrels.
On Nymex, June gasoline
RBM8, +0.09%
rose 0.2% to $2.205 a gallon, while June heating oil
HOM8, -0.17%
ended little changed at $2.249 a gallon.
Read: U.S. gasoline prices could top $3 this summer thanks to Iran and Venezuela
June natural gas
NGM18, -0.25%
settled down by 0.2% at $2.836 per British thermal units.
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Source : MTV
