Oil rises as US drilling stalls, Washington sanctions on Iran loom

Violence in Iraq, including a rocket attack on Basra airport on Saturday, also sparked fears of supply disruptions, although so far there have been no interruptions to oil exports. (File/Shutterstock)
Updated 10 September 2018
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Oil rises as US drilling stalls, Washington sanctions on Iran loom

  • US energy companies cut two oil rigs last week, bringing the total count to 860
  • New US sanctions against Iran’s crude exports from November were helping push up prices

SINGAPORE: Oil prices rose on Monday as US drilling for new production stalled and as the market eyed tighter conditions once Washington’s sanctions against Iran’s crude exports kick in from November.
US West Texas Intermediate (WTI) crude futures were at $68.23 per barrel at 0640 GMT, up 48 cents, or 0.7 percent, from their last settlement.
Brent crude futures climbed 64 cents, or 0.8 percent, to $77.46 a barrel.
US energy companies cut two oil rigs last week, bringing the total count to 860, energy services firm Baker Hughes said on Friday.
The US rig count has stagnated since May, after staging a recovery since 2016, which followed a steep slump the previous year amid plummeting crude prices.
Outside the United States, new US sanctions against Iran’s crude exports from November were helping push up prices.
Energy consultancy FGE said several major Iran customers like India, Japan and South Korea were already cutting back on Iran crude.
“Governments can talk tough. They can say they are going to stand up to Trump and/or push for waivers. But generally the companies we speak to ... say they won’t risk it,” FGE said.
“US financial penalties and the loss of shipping insurance scares everyone,” it said in a note to clients.
Violence in Iraq, including a rocket attack on Basra airport on Saturday, also sparked fears of supply disruptions, although so far there have been no interruptions to oil exports.
Tighter outlook?
With US rig activity stalling and Iran sanctions looming, the oil market outlook is tightening.
“Investors have largely turned positive again ... likely welcoming the return of backwardation,” said Edward Bell, commodity analyst at Emirates NBD bank.
Backwardation describes a market in which prices for immediate delivery are higher than those for later dispatch. It is considered a sign of tight conditions giving traders an incentive to sell oil immediately instead of storing it.
The Brent backwardation between October this year and mid-2019 is currently around $2.20 per barrel.
While Washington exerts pressure on other countries to fall into line and also cut imports from Iran, it is also urging other major producers to raise their output in order not to create too strong a price spike.
US Energy Secretary Rick Perry will meet counterparts from Saudi Arabia and Russia on Monday and Thursday, respectively, as the Trump administration seeks the world’s biggest exporter and producer to keep output up.
One key question going forward is how demand develops amid the trade dispute between the United States and China, as well as general emerging market weakness.
Asian shares on Monday were on track for their eighth straight session of declines, while China’s yuan and India’s rupee also came under renewed pressure as US President Donald Trump threatened yet more import tariffs on Chinese goods.
Consultancy FGE warned that “trade wars, and especially rising interest rates, can spell trouble for the emerging markets that drive (oil) demand growth.”
Despite this, FGE said the likelihood of significantly weaker oil prices was relatively low as the Organization of the Petroleum Exporting Countries (OPEC) would withhold output to prevent prices from plunging.
“We see $65 per barrel as a trigger for cuts,” FGE said.


‘Get prices down’ Trump tells OPEC

Updated 20 September 2018
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‘Get prices down’ Trump tells OPEC

  • Trump highlights US security role in region
  • Comments come ahead of oil producers meeting in Algeria

LONDON: US president Donald Trump urged OPEC to lower crude prices on Thursday while reminding Mideast oil exporters of US security support.
He made his remarks on Twitter ahead of a keenly awaited meeting of OPEC countries and its allies in Algiers this weekend as pressure mounts on them to prevent a spike in prices caused by the reimposition of oil sanctions on Iran.
“We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices!” he tweeted.
“We will remember. The OPEC monopoly must get prices down now!”
Despite the threat, the group and its allies are unlikely to agree to an official increase in output, Reuters reported on Thursday, citing OPEC sources.
In June they agreed to increase production by about one million barrels per day (bpd). That decision was was spurred by a recovery in oil prices, in part caused by OPEC and its partners agreeing to lower production since 2017.
Known as OPEC+, the group of oil producers which includes Russia are due to meet on Sunday in Algiers to look at how to allocate the additional one million bpd within its quote a framework.
OPEC sources told Reuters that there was no immediate plan for any official action as such a move would require OPEC to hold what it calls an extraordinary meeting, which is not on the table.
Oil prices slipped after Trumps remarks, with Brent crude shedding 40 cents to $79 a barrel in early afternoon trade in London while US light crude was unchanged at about $71.12.
Brent had been trading at around $80 on expectations that global supplies would come under pressure from the introduction of US sanctions on Iranian crude exports on Nov. 4.
Some countries has already started to halt imports from Tehran ahead of that deadline, leading analysts to speculate about how much spare capacity there is in the Middle East to compensate for the loss of Iranian exports as well as how much of that spare capacity can be easily brought online after years of under-investment in the industry.
Analysts expect oil to trend higher and through the $80 barrier as the deadline for US sanctions approaches.
“Brent is definitely fighting the $80 line, wanting to break above,” said SEB Markets chief commodities analyst Bjarne Schieldrop, Reuters reported. “But this is likely going to break very soon.”