Published: Wed, September 26, 2018
Markets | By Josh Butler

Supply stand-off pushes oil to four-year high

Supply stand-off pushes oil to four-year high

Worldwide oil benchmark, Brent crude, rose above the $80 per barrel mark on Monday, trading around $81, its highest level in almost four years.

The catalysts behind the tightening are looming sanctions against Iran, which are expected to limit world supply and unwillingness by OPEC and its allies to raise output to offset the widely expected short-fall.

A steady rise in US oil output will gather pace in the next five years, OPEC said on Sunday, predicting that demand for the producer group's crude will decline despite a growing appetite for energy fed by global economic expansion.

"We are in a fluid market condition that would require month-on-month meetings", the minister said.

Crude oil futures have spiked in early Asian trade on Monday, a move unlikely to be welcomed by US President Donald Trump who took to Twitter late last night to express his displeasure at recent price gains. "I am telling him (Trump), keep quiet, do not do any tweets, and then you will be better off in the prices".

The committee formed by OPEC and non-OPEC oil producers "was directed to study the 2019 outlook and present options on 2019 production levels to prevent market imbalance", the closing statement in Algiers added.

Hossein Kazempour Ardebili, Iran's ambassador to the Organization of the Petroleum Exporting Countries (OPEC), said none of the current major producers including Saudi Arabia and Russian Federation had the technical capability to fill the gap that would be created as a result of a potential halt in Iran's oil exports.

Iran is expected to lose some 1.4 million barrels-per-day of supply as U.S. sanctions go into force November 5, while Venezuela and Libya also present supply risks, pushing up cost, according to market analytics firm S&P Global.

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Such an increase "will leave global oil market spare capacity at a 10-year low and the market will react very nervously if Saudi Arabia gets closer to its maximum production", said UBS's Mr. Staunovo said.

For months, Saudi Arabia had led investors to believe that it was comfortable with Brent crude oil at about $80 per barrel.

OPEC projects that "the strongest annual increases are seen in the near-term, in which total USA tight oil increases by an average of 1.4 million barrels a day" annually from this year to 2020.

Brent futures breached the $80 per barrel mark on Monday, after having averaged $72 per barrel for much of the year and rallying around $79 per barrel since August.

"The market is what determines the oil prices", he added.

"OPEC is struggling to battle through a flawless storm of strong demand and bigger-than-expected supply losses", said Daniel Hynes and Soni Kumari, Commodity Strategists at ANZ Bank last week.

Opec, which was meeting in Algiers on Sunday to discuss how to share out an increase in output to bring down prices, sees the U.S. as soaking up most of the growth in production over the next 10 years.

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