Oil Rises on Falling Supply, Prospects of Iran Sanctions
March 23 2018 - 4:02PM
Dow Jones News
By Stephanie Yang and Christopher Alessi
Oil prices closed at the highest level in eight weeks on Friday,
lifted by declining global supply along with the possibility of
fresh Iran sanctions.
Light, sweet crude for May delivery rose $1.58, or 2.5%, to
$65.88 a barrel on the New York Mercantile Exchange, the highest
settle value since Jan. 26. Brent, the global benchmark, gained
$1.54, or 2.2%, to $70.45 a barrel.
Uncertainty over the state of the Iran nuclear deal has
increased in recent weeks, supporting oil prices as market
participants gauge whether President Donald Trump will scrap the
2015 agreement and reimpose economic sanctions, impacting the
country's oil output.
Those concerns escalated on Thursday after Mr. Trump named John
Bolton as his new national security adviser, as the former
ambassador is expected to take tougher stances against Iran and
North Korea.
"There's some raised geopolitical risk premium from the naming
of John Bolton as the national security adviser," said John
Kilduff, founding partner at Again Capital. "It doesn't look good
for the Iran nuclear deal to maintain itself."
Saudi Arabia, the de facto leader of the Organization of the
Petroleum Exporting Countries, also reiterated its commitment to
lowering a global crude surplus on Thursday. Energy minister Khalid
al-Falih told Reuters that members of OPEC would need to continue
to coordinate with non-OPEC producers on supply cuts next year.
"That is somewhat supportive here that the Saudis are doubling
down on trying to reduce the oversupply even more," Mr. Kilduff
said. "I think they're going to keep talking this way until they
succeed in their objective, or not."
Thomas Pugh, commodities economist at Capital Economics,
cautioned that Mr. Falih could likely be referring to a gradual
"exit strategy" from the production curb agreement.
"Cooperation doesn't necessarily mean continuing cuts in the
same way," Mr. Pugh said.
Meanwhile, declining U.S. supplies have helped boost prices. On
Wednesday, the U.S. Energy Information Administration reported a
surprise drop in crude inventories of 2.6 million barrels last
week.
Growing global demand for oil amid economic expansion has helped
offset concerns over record high shale production in the U.S.
"All major economies remain in an expansion mode. For now, the
global recovery in oil demand has been broad-based across regions
and economic sectors, and also unyielding to rising prices,"
analysts at Bank of America Merrill Lynch wrote in a Thursday
note.
However, analysts said strong demand remains at risk given fears
of a trade war, in the wake of fresh White House tariffs on China.
Oil prices had their worst day in two weeks on Thursday in response
to the announcement.
If global trade "goes into reverse, it could really dent rosy
demand projections" for oil, Mr. Pugh said.
Market observers are awaiting weekly data from Baker Hughes on
Friday on the number of rigs drilling for oil in the U.S., a
measure of activity in the sector.
Gasoline futures rose 1.2% to $2.0336 a gallon and diesel
futures rose 1.3% to $2.0184 a gallon
Write to Stephanie Yang at stephanie.yang@wsj.com and
Christopher Alessi at christopher.alessi@wsj.com
(END) Dow Jones Newswires
March 23, 2018 15:47 ET (19:47 GMT)
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