Oil prices rose Thursday on renewed concerns that Iran oil exports will fall sharply due to U.S. sanctions, creating a hole in global supplies that won’t be filled by other major oil-producing nations.
Light, sweet crude for November delivery ended 0.8% higher at $72.12 a barrel on the New York Mercantile Exchange. That’s just shy of an 11-week closing high of $72.28 a barrel reached Tuesday. Brent crude, the global benchmark, rose 0.5% to $81.72 a barrel.
Oil prices have closed higher four of the past five sessions, with their only decline coming on Wednesday when weekly data showed an unexpected increase in U.S. crude inventories. But analysts said markets have looked past that data to focus on the implications of shrinking exports of Iranian oil.
“The overall market remains biased to the upside as the U.S. is set to add more stringent sanctions on Iran in early November with promises of additional sanctions beyond the November round,” said Dominick Chirichella, an analyst at Energy Management Institute. “Exports from Iran are starting to decline according to various media sources with OPEC and their non-OPEC allies holding production steady at current levels after failing to announce any recommendations to increase production to offset Iranian losses at their meeting last weekend.”
Oil prices also got a boost during the overnight session when U.S. Energy Secretary Rick Perry indicated Washington wouldn’t open up its strategic petroleum reserves as a way of boosting global supplies to cap oil prices.
“There had been a growing view in the market that the U.S. would take such action in order to counter the impact from sanctions on Iran, particularly after OPEC+ members ignored President Trump’s request to increase production,” said Warren Patterson, commodities strategist at ING Bank.
U.S. Energy Secretary Rick Perry speaks during a joint press conference on Sept. 18 in Bucharest, Romania. Photo: daniel mihailescu/Agence France-Presse/Getty Images
Oil prices notably resumed their uptrend Thursday even as the dollar strengthened following a decision by the Federal Reserve to increase interest rates for a third time this year. Oil prices are bought and sold in dollars, so oil prices often move in the opposite direction of the U.S. currency.
“A strong dollar is keeping the black stuff from rising higher,” said Alfonso Esparza, senior analyst at foreign-exchange trading group Oanda.
The recent rise in oil prices began after the Organization of the Petroleum Exporting Countries and its production allies, including Russia, declined at a meeting in Algiers on Sunday to announce specific plans to raise production further to offset Iran’s shrinking exports.
OPEC’s nonmove has “all of a sudden produced a very tight supply-demand balance for the fourth quarter of this year,” said Tamas Varga, analyst at brokerage PVM Oil Associates.
“As a result, the talk is now Brent reaching $100 a barrel in the not-so-distant future,” he said.
Oil prices still face downside risks, however, especially after the U.S. Energy Information Administration’s weekly oil report released Wednesday, which showed crude oil inventories rose by 1.9 million barrels when analysts were expecting a 1.3 million-barrel decline. The data also showed total U.S. stockpiles of crude oil and petroleum products rose by 4.5 million barrels to 1.24 billion barrels, its highest level since December 2017.
“Overall, a bearish release,” said Simmons & Co., noting another gauge that measures the key inventories—crude, gasoline, distillates, jet fuel and residual fuel oil—increased by 3.7 million barrels versus seasonal norms of a 1.7 million-barrel draw.
Among refined products, gasoline futures for October delivery rose 1.2% to $2.0824 a gallon. Diesel futures increased 1% to $2.3231 a gallon.