Crude Market Tightening Concerns Send US Crude Back Over $70/bbl

by Ship & Bunker News Team
Monday July 30, 2018

A "witches' brew" of factors supposedly pointing towards a tightening crude market - despite massive output in July from the Organization of the Petroleum Exporting Countries (OPEC) - was responsible for U.S. crude rising 2.1 percent on Monday after four straight weeks of losses for the benchmark.

West Texas Intermediate shot up $1.44 to $70.13 per barrel, while Brent climbed 83 cents to $75.12 per barrel.

John Kilduff, founding partner at Again Capital, said that "It's just this witches' brew of supportive factors from Iran to the Syncrude," referring to tensions rising in advance of the first of two deadlines next week for international businesses to wind down deadlines with the Islamic republic under the U.S. sanctions, and news that Suncor Energy may note be able to fully restore operations at its Alberta oil sands facility as quickly as initially thought.

Also supporting crude prices was news from last week that Saudi Arabia will suspend shipments of oil through the Bab el-Mandeb Strait, after Houthi rebels attacked a pair of oil tankers in the Red Sea: Ayham Kamel, head of Middle East and North Africa practice for Eurasia Group, speculated in a note that "The attack was probably encouraged by the Iranian leadership to demonstrate to the US, Saudi Arabia, and Israel that Iran and its allies retain a capacity to respond to intensifying economic, political, and military pressure."

Presumably the concerns over Iran won't go away anytime soon, but in a typically hawkish move to act and talk tough first then bargain later, U.S. president Donald Trump on Monday said he would be willing to meet with Iranian President Hassan Rouhani "anytime they want to," and that "If we could work something out that's meaningful, not the waste of paper that the other deal was, I would certainly be willing to meet" - a reference to the nuclear deal that critics said weighed too heavily in Iran's favour at the expense of U.S. security and that Trump scrapped earlier this year.

For the record, Trump wants a new deal that limits Iran's ballistic missile program and its role in regional conflicts in Syria, Iraq, Yemen, and elsewhere, as well as makes permanent key aspects of the original accord; Iran has rejected those conditions.

Relatively ignored on Monday was a Reuters survey showing that OPEC pumped 32.64 million barrels per day (bpd) in July, up 70,000 bpd from June's revised level and the highest this year thanks to the Congo Republic joining the cartel.

The survey also found that OPEC's adherence with supply targets slipped to 111 percent in July from a revised 116 percent in June, meaning it is still cutting more production than agreed.

Kuwait and the United Arab Emirates raised output by 80,000 bpd and 40,000 bpd respectively in July; Nigeria increased production by 50,000 bpd, and Iraq increased supply as well; as for the Saudis, the bulk of their boost "appears to have been delivered in June as Riyadh tapped storage tanks to push supply to 10.60 million bpd, near a record high," stated Reuters, adding that "the increase infuriated Iran and surprised other OPEC members with its scale."

Unsurprisingly, among countries with lower output, the biggest drop of 100,000 bpd was in Iran.

Although it could be argued that OPEC's figures demonstrate how able and willing its members are to fill the production void left by others, sentiment in the form of fear continues to motivate crude traders, and last week Phil Flynn, senior market analyst at Price Future Group Inc., summarized the mindset of his colleagues when he stated, "They're just continuing to chase from one headline to another."