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Oil edges up at settlement as supply questions vex market

Reuters  |  NEW YORK 

By Jessica Resnick-Ault

NEW YORK (Reuters) - Crude prices ended the session slightly higher on Thursday as investors weighed the potential disruption to flows from major exporter in the face of U.S. sanctions.

The market also contended with concerns about Venezuela's crude production slipping further and with bullish drawdowns in U.S. crude inventories.

Crude traded up to 3-1/2 year highs early in the session, and then retreated after a bearish inventory figure from industry information supplier Genscape, before rallying on geopolitical risks just before the settlement, traders said.

Brent crude futures settled 26 cents, or 0.3 percent, higher at $77.47 a barrel, after earlier hitting $78, the highest since November 2014. U.S. Intermediate settled up 22 cents at $71.36.

"It's not going to take that much in this environment to create a disruption, and people are going to be very nervous to be short," said Phil Flynn, analyst at "There's not a lot of room for error."

Traders exited positions late in the day, being afraid of being caught short, said Tariq Zahir, managing member at "I think we're supported on prices until there's more clarity."

The said on Tuesday that it plans to impose new sanctions against after abandoning an agreement reached in late 2015 that curbed Tehran's nuclear activities in exchange for removal of U.S. and European sanctions.

Brent crude could return to $100 a barrel next year, or even sooner, of America said, due to the ongoing collapse of Venezuelan output and risks to Iranian crude exports. The also lifted its average Brent forecast to $70 for this year and $75 in 2019.

prices are on track for their fourth consecutive quarterly gain, the longest such stretch for more than 10 years, boosted largely in the past month by fears of disruption in supplies from Iran, which pumps about 4 percent of the world's and exports about 450,000 barrels per day (bpd) to and around 1.8 million bpd to Sales to are seen by analysts as the more likely to be reduced by the sanctions.

Analysts had little hope that opposition to the U.S. action would prevent sanctions from going ahead.

European allies have said they remain committed to maintaining the nuclear deal, with German reiterating her support of the accord Thursday.

"and will not fight against the U.S. sanctions. They will grumble and accept it. There is no one who will realistically choose over the U.S.," said consultancy

"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 wrote in a note.

Even without disruption to Iran's crude flows, the balance between supply and demand in the has been tightening steadily, especially in Asia, with top exporter and No.1 having led efforts since 2017 to cap output to prop up prices.

is ready to offset any supply shortage but it will not act alone to fill the gap, an OPEC source familiar with the kingdom's said on Wednesday.

The Organization of the Petroleum Exporting Countries, however, is in no hurry to decide whether to pump more oil to make up for an expected drop in exports from Iran, four sources familiar with the issue said, saying any loss in supply would take time.

"What the full impact on Iranian flows will be is still difficult to estimate," said

"One thing that has changed and which I think is clearly a new development is that it seems to me that the administration has really pushed to do something about price and to put supply back into the market to make sure prices do not run up ... before (when sanctions were last in place) Saudi Arabia was driving its own "

One factor that could partially mitigate any shortfall from Iran is soaring U.S.

The EIA on Tuesday raised its forecast for U.S. output in its monthly report to 12 million bpd late next year. The agency has raised its forecasts every month since last August. [EIA/M]

This would make the the world's largest producer, ahead of both and Saudi Arabia.

(Additional reporting by in SINGAPORE and Amanda Cooper in London; Editing by and David Goodman)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Fri, May 11 2018. 01:57 IST