Oil set for longest quarterly rally in 8 years on supply fears

Oil is poised for the longest run of quarterly gain in eight years as fears over global supply disruptions overshadow Opec’s decision to ease its historic output curbs.

Futures in New York were on course for a 13% increase in the April to June period, rising for a fourth consecutive quarter. Prices have rallied over 12% in the last two weeks as a tougher US stance on Iran threatens to cut exports from Opec’s third-largest supplier. Concern is rising that lower output from the Persian Gulf state will strain the producer group’s spare capacity at a time when the market is already grappling with shrinking American inventories, a Canadian oil-sands outage, as well as turmoil in Libya.

Output curbs by the Organisation of Petroleum Exporting Countries and its allies that started last year helped reduce stockpiles to below their five-year average, helping crude recover from its worst crash in a generation. While the cartel has since signalled it’s going to ease cuts after pressure from the US, prices remain elevated as its pledge to boost output did little to appease concerns over a supply shortage. This month may see oil post its biggest monthly gain since September, and its best June advance since 2008.

“The market’s captivated by the widespread supply disruptions from Iran, Libya to Canada, as well as plunging stockpiles in the US,” Lim Jaekyun, a commodities analyst at KB Securities Co., said by phone in Seoul. “It seems Opec’s deal to increase supply is being somewhat ignored by the market on a looming global shortage, but once we actually see Opec’s production increase, prices will start stabilising.”

West Texas Intermediate crude for August delivery traded at $73.19 a barrel on the New York Mercantile Exchange, down 26 cents, at 12:52 p.m. in Seoul. The contract rose 69 cents to $73.45 on Thursday, and is up $6.15 this week. Total volume traded was about 30% below the 100-day average.

Brent for August settlement, which expires Friday, was down 12 cents to $77.73 on the London-based ICE Futures Europe exchange. The contract is up 0.2% this month. The global benchmark was at a $4.51 premium to WTI for the same month.

The world’s two most important oil benchmarks are diverging as Saudi Arabia’s promise to fill any supply gaps weighed on the European marker, while shrinking inventories in the US supported futures in New York. The spread between Brent and WTI has slipped almost 60% this month to the narrowest since March on Thursday. The spread has collapsed since settling at $11.43 on June 7, the widest since February 2015.

A market structure known as backwardation, where near-term prices trade at a premium to later contracts, persisted this month. WTI for August settlement was about $1.60 higher than the September contract, signalling a supply shortage after Syncrude Canada Ltd. was said to cut volumes to customers after an unplanned outage in Alberta last week. Meanwhile, Brent for near-term delivery was only about 20 cents higher than later cargoes, a much smaller premium than in the American market.

In the US, the Energy Information Administration said nationwide stockpiles fell by 9.89 million barrels last week, more than the 3-million-barrel decline expected in a Bloomberg survery. Inventories in the storage hub at Cushing, Oklahoma, also contracted by 2.7 million barrels, while exports surged to the 3-million-mark for the first time despite concerns about a pipeline bottleneck in the Permian region.

In Libya, forces loyal to Khalifa Haftar, a commander in the politically divided nation’s east, have handed over control of ports with a combined export capacity of 800 000 barrels a day to a self-declared National Oil Corp. in the eastern city of Benghazi. Recent clashes cost the country about 450 000 barrels of daily output, taking more oil off the market just days after Opec reached a deal with allies to increase production.

Oil-market news:

Iran’s position in the oil market is looking weaker than ever as a bruising Opec meeting and the tightening net of US sanctions leave it with fewer friends and fleeing customers. The US Energy Department indicated that US sanctions on Iran may leave room for buyers of the Islamic Republic’s oil to cut back gradually, a move that threw a small wrench in the market. Futures are up 0.8% to 494.8 yuan on the Shanghai International Energy Exchange, heading for a third monthly advance since the derivatives’ debut on March 26.

� L.P