Crude Benchmarks Once Again Rise Based on Tightening Supply Fears

by Ship & Bunker News Team
Thursday August 30, 2018

For the first time since July, U.S. crude on Thursday topped $70 per barrel amid resurfacing concerns about a tightening global market due to Washington's sanctions against Iran; and as if to support these concerns, the International Energy Agency predicted that this tightening will become readily apparent by the end of this year.

West Texas Intermediate climbed 74 cents, or 1.1 percent, to settle at $70.25 per barrel, while Brent gained 63 cents, or 0.8 percent, to $77.77 per barrel; with this, both benchmarks achieved their highest settlements for August and are poised to make gains for the week and month, according to FactSet data.

The gains were in part a somewhat delayed reaction to Wednesday's disclosure from the Energy Information Administration that U.S. crude supplies declined by 2.6 million barrels for the week ended August 24; this followed a 5.8 million barrel drop the week prior.

However, according to Stephen Innes, head of trading at OANDA, "the primary bullish factor remains rooted in Iran sanctions"; presumably, traders are still spooked by Iran threatening to halt the flow of oil via the Strait of Hormuz, which earlier this week they claimed to control in a display of sabre-rattling that makes for dramatic headlines but whose veracity is open to considerable debate - at least as far as the U.S. military is concerned.

Even though for every sound argument about a global market tightening can be countered by equally compelling evidence that no such tightening will take place, the trading week is ending with sentiment favouring the former forecast, and if predictions from the IEA are any influence, crude could continue to make price gains well into next week.

Fatih Birol, executive director of the IEA, told Reuters after a meeting with Dharmendra Pradhan, oil minister for India, "Definitely there are some worries that oil markets can tighten towards the end of this year and as major oil importing countries India and other countries need to be ready."

Birol believes the tightening will be a result of "very strong demand growth and a major problem is that Venezuelan production is collapsing."

Earlier this week, Stephen Schork, founder and editor of The Schork Report, lamented that so much trading activity has been spurred by what he referred to as "old" headlines such as Venezuela and the Iran sanctions: "If we all know the headlines, then in theory it's all priced in, so when you get a market like this that lives off the headlines, you need more and more headlines to feed it."