Oil prices jumped on Monday one day after OPEC and its allies announced it will not boost production beyond its agreed upon output amounts in the 2017 OPEC supply cut agreement. Reuters photo by Ramzi Boudina.
Oil prices climb over $80/barrel
Brent oil prices jumped almost 3 per cent on Monday to a four-year high after OPEC and its allies in the cartel’s supply cut agreement announced they will not increase production despite demands from US President Donald Trump to lower oil prices.
OPEC along with non-cartel countries, including Russia, met in Algiers on Sunday. The participants ended the meeting without a formal recommendation to boost supply to make up for lost Iranian crude exports resulting from the Trump sanctions against Iranian crude exports which begin in early November.
“The market’s still being driven by concerns about Iranian and Venezuelan supply,” Gene McGillian, director of market research at Tradition Energy told Reuters. “The failure of the producers to address that adequately this weekend is creating a buying opportunity.”
By 2:27 p.m., EDT, Brent crude climbed $2.29 to $80.53/barrel. This is down from a session high of $81.39/barrel. US West Texas Intermediate was up $1.17 to $71.95/barrel. The Canadian Crude Index rose 3.10 per cent to $38.91.
Last week, Trump tweeted “We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!”
Sunday’s decision by OPEC and its allies is seen as a rebuff against Trump’s demand to drop oil prices ahead of the already contentious US midterm elections.
Reuters reports that Iran’s Oil Minister Bijan Zanganeh said on Monday that OPEC had not responded positively to Trump’s demands.
“It is now increasingly evident, that in the face of producers reluctant to raise output, the market will be confronted with supply gaps in the next three-six months that it will need to resolve through higher oil prices,” BNP Paribas oil strategist Harry Tchilinguirian told Reuters.
Commodity traders Trafigura and Mercuria warn that Brent could top $90 per barrel by the end of 2018 and be over $100/barrel early next year as a result of US sanctions on Iranian crude exports.
JPMorgan says that as a result of the Trump administration’s sanctions, loss of Iranian crude exports could lead to a drop of 1.5 million barrels of crude per day. Mercuria says the damage could be worse, forecasting a fall of 2 million b/d from the oil market.
These concerns about supply shortfalls have encouraged traders to place more long bets, Brian LaRose, technical analyst at United-ICAP told Reuters.
The escalating trade war between the United States and China has led many in the market to see demand for crude softening and likely offsetting Iranian production cuts.
McGillian told Reuters that should Chinese demand remain strong, the oil market will continue to surge.
Also, US commercial crude inventories are at their lowest point since early 2015, despite US production being at a near record high of 11 million barrels per day. Slowing US drilling points to a slowdown in US crude output.
On Friday, Baker Hughes reported the US rig count fell by one to 866.