US oil prices hit multi-year high on concern over Iran sanctions

New York — US oil prices rose to a three-and-a-half-year high on Thursday, bolstered by supply concerns due to US sanctions that could cause a large drop in crude exports from Iran.

US West Texas Intermediate (WTI) crude futures rose 84c to $73.61 a barrel, up 1.2%, by 3.52pm GMT. It reached $74.03 earlier in the session, its highest since November 26 2014. Brent crude futures rose 23c to $77.85 a barrel, up 0.3%.

The US, this week, demanded all countries halt imports of Iranian oil from November, a hard-line position the Trump administration hopes will cut off funding to Tehran. On Thursday, officials said they would work with countries on a case-by-case basis. China, the biggest importer of Iran’s oil, has not committed to the US position.

“The sanctions are trying to isolate Iran a bit more, and that potentially cuts more oil off from the overall global arena as a whole,” said Mark Watkins, a regional investment strategist at US Bank Wealth Management. “If you’re having Iran’s oil taken off the market, then you have a decrease in supply and, by all means, that’s going to put more pressure on the price of oil to move up.”

The US demands follow a decision by oil cartel Opec, last week, to increase production to try to moderate oil prices that have rallied more than 40% over the last year. Oil prices have rallied for much of 2018 on tightening market conditions due to record demand and voluntary supply cuts led by Opec and other producers, including Russia.

Unplanned supply disruptions from Canada to Libya and Venezuela also have supported prices.

US crude futures also extended gains after data showed inventories at the Cushing, Oklahoma, delivery hub fell by 3.1-million barrels in the week through June 26, traders said, citing data from market intelligence firm Genscape.

Front-month WTI’s premium to the second month surged to a session high of $1.73 a barrel after the data, while US crude’s discount to Brent also narrowed to the smallest in three months at $4.32 a barrel.

Not all indicators point toward an ever-tightening market. US crude production is approaching 11-million barrels per day (bpd), and Saudi Arabia expects to match that in coming months. However, analysts say the market has little spare capacity to deal with further disruptions.

ANZ bank said, “With inventories still declining and spare capacity uncomfortably low, there is very little cushion for any supply disruption caused by rising geopolitical risks.”

Reuters