Oil prices rose on Friday after reports that OPEC and its allies would increase production by a total of 500,000 barrels per day to avoid global crude shortages due to the Trump administration’s reimposition of sanctions on Iranian crude.  Anadarko photo.

US oil prices up over 1 per cent

In a volatile trading on Friday, oil prices were up slightly after OPEC announced that the cartel and its allies may increase their production to help offset the loss of Iranian crude exports resulting from planned US sanctions on Tehran.

By 1:51 p.m., EDT, benchmark Brent crude was up even at $78.22/barrel, down from the session high of $80.12/barrel.  US West Texas Intermediate climbed 71 cents to $71.03/barrel.  The Canadian Crude Index rose 25 cents to $38.09.

The OPEC announcement came one day after President Trump tweeted that the cartel is responsible for rising oil prices.  “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!”

On Sunday, OPEC along with partners in the cartel’s supply cut agreement, including Russia, will meet in Algeria to discuss how to mete out production increases amongst the participants.  According to a Reuters’ source, OPEC and its allies will discuss boosting output by 500,000 barrels per day (b/d).

Investors and analysts remain concerned that OPEC and other non-cartel producers may not be able to offset the shortfall resulting from the Trump administration’s sanctions on Iranian crude exports.  Iran is OPEC’s third-largest producer of crude.

During early trading on Friday, prices rose after a report showed that a drop in Iranian crude supply led to an overall production decline from OPEC and non-cartel countries in August compared to July.

“Iranian crude exports are coming (down) earlier and bigger than expected, at a time seasonal demand is strong. With spare capacity also falling sharply, the market remains exposed to supply-induced price shocks,” Reuters reports ANZ Bank analysts said in a note to clients.

Threats from Iran to restrict transport on the strait of Hormuz grew on Friday.  According to Reuters, in a show of strength prior to the sanctions, the Iranian Revolutionary Guards and the country’s army carried out a joint aerial military drill in the Gulf on Friday.

After the reports surfaced that OPEC may boost its production to compensate for the drop in Iranian output, the market calmed.

Jason Gammel, an analyst at US bank Jefferies, told Reuters that he expects Saudi Arabia to ensure the market is adequately supplied into 2019, “but at the cost of spare capacity”.  Spare capacity is one of the key supply buffers in place to prevent oil price spikes.

“Spare capacity could fall below 1 per cent of demand by year-end if Iranian exports fall below 1 million barrels per day, as now seems likely,” Gammel said.