Strong dollar and rising US supply curb rally in crude oil

Singapore — Oil prices were firm on Wednesday on expectations of tighter markets once US sanctions target Iran’s petroleum industry from next month, although a strong dollar and rising US crude supply curbed gains.

Brent crude oil futures were at $84.86 a barrel at 3.40am GMT, up 6c from their last close.

US West Texas Intermediate (WTI) crude futures were up just 1c at $75.24 a barrel.

Traders said global oil markets remained tense because of the looming US sanctions against Iran’s oil exports, which kick in on November 4.

Earlier this week Brent and WTI both reached levels last seen in November 2014, and the two contracts have risen by 20% and 17% respectively since mid-August.

Despite this, traders said prices were held back by a strong dollar, which makes oil imports more expensive for countries using other currencies domestically, as well as by climbing supply in the US.

US commercial crude inventories rose by 907,000 barrels in the week to September 28, to 400.9-million barrels, the private American Petroleum Institute (API) said on Tuesday. Refinery crude runs fell by 158,000 barrels a day, API data showed.

Official weekly government data is due from the Energy Information Administration (EIA) on Wednesday.

Traders said the rising stocks were partly due to a relentless increase in US crude oil production, which has jumped by a third since mid-2016 to a record 11.1-million barrels a day.

“We expect US crude production to exit the year at 11.3-million barrels a day,” Barclays bank said in a note on Tuesday.

That would mean the US would challenge Russia as the world’s biggest crude oil producer.

On the demand side, fuel consumption is strong, growing especially fast in Asia’s emerging economies.

However, high crude prices, combined with widespread emerging market currency weakness, threaten growth.

“That oil prices are rising to elevated levels at the same time as emerging-market currencies hit record lows will be a flashing signal to Opec members that demand may be at risk of a sharp correction,” said Emirates NBD bank.

Reuters

The Carlyle Group’s Philadelphia Energy Solutions oil refinery in Philadelphia, US. Picture: REUTERS/DAVID M PARROT