Crude Prices Rise to 2-Week High on Renewed Worry Over Geopolitical Risk

by Ship & Bunker News Team
Monday February 19, 2018

As was the case late last week, the recovering global equity market helped crude prices on Monday hit their highest level in almost two weeks, with West Texas Intermediate settling up 54 cents to $62.22 per barrel, and Brent up 37 cents to $65.21.

But as always, the prices were also driven by trader worries, and Monday saw renewed focus on tensions in the Middle East, the result of border incidences in Syria that inspired Benjamin Netanyahu, prime minister of Israel, to state that his nation could act against Iran itself, not just its allies.

Matt Smith, head of commodities research for ClipperData, agreed that geopolitical tensions, along with demand growth and "on going supportive rhetoric" out of Saudi Arabia are "three real supportive elements to crude" - the latter a reference to the Organization of the Petroleum Exporting Countries (OPEC) continuing to receive widespread credit for maintaining high compliance in the second year of its crude output cuts.

However, he added that the tensions are not just confined to the Middle East: "We're also seeing issues in Colombia, Venezuela.....in Africa we're seeing issues in Libya and Nigeria," and these tensions are all the more of a concern "because fundamentals are a lot tighter than they were six months ago."

If other news on Monday is anything to go by, another familiar concern for traders may have an impact on market performance in the coming days: a weekly report from General Electric's Baker Hughes unit showed that the U.S. oil rig count rose by 7 to 798, its highest since April of 2015 and the fourth consecutive week that drillers have added rigs.

Further setting the stage for possible near term market anxiety was InterContinental Exchange data showing that bullish bets on Brent crude futures have been slashed by the most in nearly eight months in the week to February 13; and the U.S. Commodity Futures Trading Commission reporting that speculators also cut net long U.S. crude futures and options positions in the week to February 13 by the most since late August.

Smith's reference to the Saudis' support of OPEC as a benefit to prices is ironic given that Khalid al-Falih, energy minister for the kingdom, last week disclosed that a metric being used to measure stockpiles is flawed and should be replaced - which implies that any claim made by OPEC about the state of the crude market is questionable at best.