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Oil prices jump as US sanctions on Iran threaten to affect crude volume

But the world oil market is already tight with unplanned disruptions in Canada, Libya and Venezuela removing supply

Reuters  |  New York 

Oil refineries
Representative image

rose on Friday as U.S. sanctions against Iran threatened to remove a substantial volume of from world at a time of rising global demand.

"Now everyone is focused on the issue of spare capacity and the future," said Tamar Essner, Nasdaq's lead energy analyst. The market's attention has shifted to a spate of disruptions after weeks of focus on supply coming online from OPEC and other major producers, she said.

U.S. crude rose 80 cents a barrel to $74.24 by 12:51 p.m. EDT [1651 GMT], and earlier touched $74.43, the highest since November 26, 2014. The contract was on track to close the week up 8.2 per cent.

Benchmark jumped $1.85 to a high of $79.70 a barrel before easing back to $79.40 a barrel. The contract was on track to close the week up 5 per cent.

"All the potential shortfalls could outstrip the production increase agreed to by OPEC and Russia," said Dominick Chirichella, Director of Risk Management at EMI DTN. There's a risk that supplies from Iran could be cut further as there's pressure on other countries to join the United States in sanctions, he said.

Iran is the fifth-largest oil producer in the world, pumping about 4.7 million barrels per day (bpd), or almost 5 per cent of total output, much of it to China and other energy-hungry nations such as India.

The U.S. government wants to stop Tehran exporting oil to cut off a vital supply of finance, and hopes other big oil producers in the Organization of the Petroleum Exporting Countries and will make up for the deficit.

But the world oil market is already tight with unplanned disruptions in Canada, Libya and Venezuela removing supply.

Many analysts and investors think strict enforcement of U.S. sanctions against Iran will push up prices sharply.

"It is becoming increasingly clear that Saudi Arabia and will struggle to compensate for potential losses in from the likes of Venezuela, Iran and Libya," said Abhishek Kumar, analyst at Interfax Energy in London.

Vienna-based consultancy JBC Energy said the stronger the implementation and enforcement of U.S. sanctions, the higher the oil price will go. "Triple-digit are not off the table," JBC said.

A Reuters survey of 35 economists and analysts on Friday forecast Brent would average $72.58 a barrel in 2018, 90 cents higher than the $71.68 forecast in last month's poll and compared with the $71.15 average so far this year.

North American have fallen as an outage at Canada's Syncrude has locked in more than 300,000 bpd of production. The outage is expected to last at least through July, according to operator Suncor Energy.

U.S. crude production slipped by 2,000 barrels per day (bpd) to 10.467 million bpd in April, falling from the highest on record in March, the (EIA) said in a monthly report on Friday.

Outside North America, record demand and voluntary supply cuts led by OPEC have pushed up prices.

Major buyers of Iranian oil, including Japan, India and South Korea, have indicated they may stop importing Iranian crude if U.S. sanctions are imposed.

Until then, however, they are buying as much Iranian oil as possible. Imports of by major buyers in Asia rose in May to the highest in eight months.

First Published: Fri, June 29 2018. 23:21 IST