Oil prices rose on Wednesday, with Brent topping $80/barrel during the session after the US EIA reported a decline in US crude stocks and the market jitters continued over the expected fallout from the Trump administration’s sanctions on Iranian crude will have on the global oil supply.  Pioneer Natural Resources photo.

Oil prices up as US crude stocks drop by 5.3 million barrels

Brent oil futures reaching $80 a barrel during trading on Wednesday, after a larger-than-expected drop in US crude inventories was reported by the US EIA and as impending US sanctions on Iran added to concerns over shortages in the global oil supply.

Benchmark Brent futures climbed 68 cents to end the session at $79.74/barrel, down from the day’s high of $80.13/barrel, the highest since May 22.  US West Texas Intermediate was up $1.12 to settle at $70.37/barrel.  The Canadian Crude Index rose 41 cents to $40.96.

According to the US Energy Information Administration, US crude stockpiles fell by 5.3 million barrels last week, much higher than the 805,000 barrels forecast by analysts prior to the data release.

“Today’s crude stock draw of 5.3 million barrels fell far short of the (American Petroleum Institute’s) decline but was significantly larger than the normal draw of around 1 million barrels for this particular week,” Reuters reports Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.

Another factor underpinning oil prices are concerns over global crude supply as the Trump administration’s sanctions against Iranian crude are set to begin in the beginning of November.

“Iran is increasingly becoming the preoccupation of the crude market. The last couple of weeks have seen the expected squeeze on Iranian crude flows taking shape, with overall outflows down markedly,” consultancy JBC Energy told Reuters.

Russia’s Energy Minister Alexander Novak warned about the expected effects of the US sanctions against Iran.

“This is a huge uncertainty on the market – how countries, which buy almost 2 million barrels per day (b/d) of Iranian oil, will act,” said Novak. “The situation should be closely watched, the right decisions should be taken,” he said.

Novak added that geopolitical risks and supply disruptions have made global oil markets “fragile”.  He did add that Russia could boost its production if necessary.

In its monthly report, OPEC reduced its 2019 oil demand growth forecast, citing increased challenges in some emerging and developing countries could negatively impact global economic growth.

The cartel says it expects demand to grow by 1.41 million b/d next year, down 20,000 from previous forecasts.

Hurricane Florence is also on the mind of traders.  The category 4 hurricane is expected to make landfall on the US East Coast Friday.

While crude output will not be affected by the storm, the evacuation of over a million residents has resulted in a near-term spike in fuel demand.