Oil prices surge as Saudis, Russia won't open spigots

Irving Hamilton
September 25, 2018

The meeting ended with no formal agreement on any additional supply boost.

It comes amid fears oil prices could hit an eye-watering $100 per barrel as U.S. sanctions against Iran begin.

Oil prices have been rising since early 2017, when the Organisation of the Petroleum Exporting Countries (OPEC) together with other suppliers including Russian Federation started withholding output to lift crude values.

Brent crude rose more than 3% to more than $81 a barrel on Monday, its highest level since November 2014. While the group didn't take action on Sunday, it seems set on making sure the market doesn't get too carried away, said Mark Quartermain, Royal Dutch Shell Plc's vice president for global crude oil trading and supply. "In my view, that makes it conceivable to see a price spike north of US$100 a barrel". Furthermore, it leaves the market extremely vulnerable to supply disruptions.

"Fears that supply will be hit when the USA sanctions on Iran kick in come November are pushing up oil prices".

The Oman forward curve has seen backwardation steepen in the past month, with the front-month contract now at a premium of $2.95 to the six-month future, up from $1.88 a month ago.

"The biggest issue is not with the producing countries, it's with the refiners, it's with the demand". However, Saudi Arabia and Russian Federation now say they have no more capacity.

"Market is still open for us, and we are now exporting oil".

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Wall Street bankers and hedge funds also saw some caveats to the bullish mood.

The market was "increasingly concerned about dwindling (U.S.) inventories", ANZ bank said on Monday.

Concerns about production shortfalls are encouraging traders to place more long bets, boosting Brent prices, said Brian LaRose, a technical analyst at United-ICAP.

"First, crude oil prices are rising against a strong dollar backdrop".

Higher gasoline prices for USA consumers could create a political headache for Republican Trump before mid-term congressional elections in November.

"South Korea was the first country to halt Iran's oil imports following the USA sanction threats against the country", Kasra Nouri, the public relation manager of the ministry, was quoted as saying by SHANA news agency.

"Were they do so the oil market would be even more uncomfortably tight than we forecast for 2019 as spare capacity is eroded", Mr Bell added.

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