Published May 10, 2018, 2:29 PM By Reuters
Oil prices clocked up more
multi-year highs on Thursday as traders adjusted to the prospects of renewed US
sanctions against major crude exporter Iran amid an already tightening market.
The United States plans to impose
new sanctions against Iran, which produces around 4 percent of global oil
supplies, after abandoning an agreement reached in late 2015 which limited
Tehran’s nuclear ambitions in exchange for removing US-Europe sanctions.
Oil prices rose sharply in response
to the announced measures.
Brent crude futures, the
international benchmark for oil prices, hit their strongest since November 2014
above $77.80 per barrel at 0421 GMT on Thursday.
US West Texas Intermediate
(WTI) crude futures also marked a November-2014 high, at $71.75 a barrel at
that time.
In China, which is Iran’s single
biggest buyer of oil, Shanghai crude futures posted their biggest intra-day
rally since their launch in March, rising more than 4 percent to a
dollar-denominated record of around $73.40 per barrel.
Analysts had little hope that
opposition to the US action would prevent sanctions from going ahead.
“Europe and China will not fight
against the US sanctions. They will grumble and accept it. There is no
one who will realistically choose Iran over the US,” said energy consultancy
FGE.
“We believe the previous 1 million
bpd limit for exports (imposed during previous sanctions) will be reimposed. As
before, it may take several rounds of reductions to reach target levels,” FGE’s
founder and chairman Fereidun Fesharaki wrote in a note.
“Oil prices will certainly move up,
and $90-100 per barrel prices may again be on the cards,” Fesharaki said.
US bank Goldman Sachs said
renewed sanctions and risks to supplies elsewhere, especially in Venezuela,
meant there was a high possibility of higher prices than the bank’s summer
Brent price forecast of $82.50 per barrel.
The threat of new sanctions come
amid an oil market that has already been tightening due to strong demand,
especially in Asia, and as top exporter, Saudi Arabia and top producer Russia
have led efforts since 2017 to withhold oil supplies to prop up prices.
US crude inventories fell by
2.2 million barrels in the week to May 4, to 433.76 million barrels, according
to the Energy Information Administration (EIA), slightly above the 420 million
barrels five-year average level.
One factor that could prevent
markets from tightening further is soaring US oil output.
“Higher prices are more than likely
to be capped as…US shale producers turn the taps back on the longer prices
remain above break-evens,” said Kerry Craig, global market strategist at J.P.
Morgan Asset Management.
Weekly US crude oil
production hit another record last week, climbing to 10.7 million barrels per
day (bpd).
That’s up 27 percent since mid-2016
and means US output is creeping ever closer to that of top producer
Russia, which pumps around 11 million bpd.
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