Global Benchmark Brent crude has jumped more than three per cent to a four-year high above $US80 a barrel after Saudi Arabia and Russia ruled out any immediate increase in production despite calls by US President Donald Trump for action to raise global supply.
The Organisation of the Petroleum Exporting Countries and non-OPEC states, including top producer Russia, gathered in Algiers on Sunday for a meeting that ended with no formal recommendation for any additional supply boost to counter falling supply from Iran.
‘The market’s still being driven by concerns about Iranian and Venezuelan supply,’ said Gene McGillian, director of market research at Tradition Energy in Stamford.
‘The failure of the producers to address that adequately this weekend is creating a buying opportunity.’
Brent crude settled up $US2.40 or 3.1 per cent at $US81.20 a barrel, after touching an intraday high of $US81.39, the highest since November, 2014.
US light crude settled up $US1.30, or 1.8 per cent, higher at $US72.08.
OPEC leader Saudi Arabia and its biggest oil-producer ally outside the group, Russia, on Sunday effectively rebuffed Trump’s demand for moves to cool the market.
‘I do not influence prices,’ Saudi Energy Minister Khalid al-Falih told reporters on Sunday.
Trump said last week that OPEC ‘must get prices down now!’, but Iranian Oil Minister Bijan Zanganeh said on Monday OPEC had not responded positively to Trump’s demands.
‘It is now increasingly evident, that in the face of producers reluctant to raise output, the market will be confronted with supply gaps in the next three-six months that it will need to resolve through higher oil prices,’ BNP Paribas oil strategist Harry Tchilinguirian told Reuters Global Oil Forum.
Commodity traders Trafigura and Mercuria said Brent could rise to $US90 per barrel by Christmas and pass $US100 in early 2019, as markets tighten once US sanctions against Iran are fully implemented from November.
JPMorgan said US sanctions on Iran could lead to a loss of 1.5 million barrels per day, while Mercuria warned that as much as two million bpd could be knocked out of the market.
Concerns about production shortfalls are encouraging traders to place more long bets, boosting Brent prices, said Brian LaRose, a technical analyst at United-ICAP.
‘This is the seventh time over the last couple of months that we have challenged the highs,’ he said, referring to individual monthly contracts, rather than a continuation contract. If Brent prices climb past $82 a barrel, he said prices up to $US90 would be a near-term possibility.
Some have said softening demand from trade tensions between the US and China to offset loss of Iranian supply, but Tradition’s McGillian said that unless trade tensions show signs of eroding Chinese demand, oil prices will surge further.
US commercial crude oil inventories are at their lowest since early 2015.
While US oil production is near a record high of 11 million bpd, subdued US drilling points toward a slowdown in output.