Oil prices notched fresh multiyear highs on Wednesday, as the market girded itself for the reimposition of U.S. economic sanctions on Iran’s oil industry.
Light, sweet crude for November delivery rose 1.6% to $76.41 a barrel on the New York Mercantile Exchange, its highest close since 2014. Brent, the global benchmark, also hit a new high, closing up 1.8% to $86.29.
Oil prices have surged in recent months, largely on the back of a faster-than-expected decline in Iranian crude exports in the run-up to the enactment of U.S. oil sanctions on Nov. 4.
“Sanctions are in full effect in terms of the physical market,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets. Traders are already buying physical oil for November delivery and beyond and they are “not doing it with Iran,” Mr. Schieldrop said.
Officials at the state-run National Iranian Oil Co. have said they provisionally expect crude shipments to have dropped to about 1.5 million barrels a day in September, compared with 2.3 million barrels a day in June, according to people familiar with the matter.
A gas flare on an oil production platform in the Soroush oil fields in the Persian Gulf, Iran, in 2005. Photo: raheb homavandi/Reuters
President Donald Trump pulled the U.S. out of a 2015 international agreement to curb Iran’s nuclear program in May, setting the stage for the reimposition of sanctions.
Prices have also been bolstered by a late September decision by the Organization of the Petroleum Exporting Countries and its partner producers not to raise production at a faster rate than previously planned. That helped send Brent squarely above the symbolic $80-a-barrel threshold last week, and it has since quickly climbed to hover around $85 a barrel.
OPEC and its production allies said they would adhere to current production quotas first implemented at the start of 2017. That means continuing a gradual ramp-up in production that was agreed at the start of the summer in an effort to bring down over compliance with the initial agreement.
At the same time, there is growing market concern that OPEC and Russia have limited spare oil capacity to fully fill the Iranian shortfall, even if they wanted to, according to Stephen Brennock, analyst at brokerage PVM Oil Associates Ltd.
“There’s zero room for error now if we lose any barrels,” said John Kilduff, founding partner at Again Capital. “We’re staring down a supply crunch, at least for a little while.”
Still, some market observers think that in the long-run OPEC and non-OPEC supply—including from the U.S.—-will offset declines in Iranian production and exports.
“This is particularly the case, as there are now clear signs that demand is slowing, which underpins our forecast that prices will fall to $60 a barrel by end-2019,” said Caroline Bain, chief commodities economist at Capital Economics.
Prices turned lower briefly following the release of government data Wednesday that showed a larger-than-expected increase in crude stockpiles last week. According to the U.S. Energy Information Administration, the amount of crude oil in storage rose by 8 million barrels, exceeding analyst expectations for a 1.3 million barrel increase.
However, traders brushed off the building supply as stockpiles of oil products like gasoline and distillates fell.
Gasoline futures fell 0.5% to $2.1378 a gallon, and diesel futures rose 1.2% to $2.4372 a gallon.