Oil prices jumped to the highest in several weeks in August, extending gains on growing concerns of a drop-off in Iranian crude exports and after a bigger-than-expected fall in U.S. crude stockpiles.
Global benchmark Brent crude traded 63 cents a barrel higher at US$77.77. U.S. crude futures settled 74 cents a barrel higher at US$70.25, after hitting a session high of US$70.50 earlier before. Both contracts rose to their highest in more than one month.
A rally occurring earlier in the day sped up as U.S. crude hiked above US$70 a barrel, and more speculators flocked into the market, said Bob Yawger, futures director at New York-based Mizuho. “There are pretty good tailwinds here that will keep people jumping on board,” he said.
Brent oil has been up by almost 10 percent in the past two weeks as traders widely perceive that the global oil market is somewhat tightening and supply could fall short of demand in next few months as looming US sanctions diminish crude supply from Iran.
The oil market seems to be once again tightening, said Giovanni Staunovo, analyst at Swiss bank UBS. “Iranian oil export declines are already visible well in advance of US oil-related sanctions, which enter into force in November.”
Since importers bend to U.S. pressure to reduce or cancel orders, it is forecast that oil exports from Iran would come down to slightly more than 2 million barrels per day (bpd) in August, compared to a top volume of 3.1 million bpd in April.
The Organization of the Petroleum Exporting Countries (OPEC), in which Iran ranks third in production, will convene a meeting in December to discuss whether producers can cover shortage from a sudden fall in Iranian supply after U.S sanctions against Tehran take effect in November, the head of Iraq’s state oil marketer Somo, Alaa al-Yasiri, said on August 29.
Crude exports from OPEC member Venezuela which is anchored in economic crisis have also met a dramatic decline, down to half of the highest level in recent years to only about 1 million bpd.
Updated weekly US oil stock data also added weight to the bullish look.
The Energy Information Administration reported U.S. crude inventories dropped by 2.6 million barrels in the week to Aug 24, beyond analysts’ forecasts of 686,000-barrel drop, to 405.79 million barrels.
U.S. oil production was in line with the previous week’s figure of 11 million bpd.
Also of note, the EIA data showed gasoline supplies were down by 1.55 million barrels and distillate stocks dropped by 837,000 barrels.
The International Energy Agency (IEA) has expressed concerns of a tightening crude market that could remain until the end of the year as a result of falling supplies in countries such as Iran and Venezuela along with strong global demand, especially in India and China.