Oil prices rose on Friday on concerns that sanctions imposed against Iran by the Trump administration will impact the global supply of crude at a time when demand is rising.  Repsol photo.

Brent oil prices up almost 2 per cent

On Friday, oil prices rose as the market grew more concerned that US sanctions against Iran will cut out a significant supply of crude, just when global demand is on the increase.

“Now everyone is focused on the issue of spare capacity and the future,” Tamar Essner, Nasdaq’s lead energy analyst told Reuters.  She added that recently, supply disruptions in Canada, Libya and Venezuela have shifted the market’s attention away from increases in OPEC’s and other major producers’ crude supply.

By 2:32 p.m., EDT, benchmark Brent crude rose $1.44 to $79.05/barrel, down from a session high of $79.70.  Brent was on track for a 5 per cent increase this week.  US West Texas Intermediate climbed 76 cents to $74.21/barrel and is set for a weekly jump of 8.2 per cent.

The Canadian Crude Index rose 59 cents to $49.21.

Iran, the fifth-largest oil producer in the world, pumps about 4.7 million barrels per day (b/d).

China and India are major customers of Iranian crude and Reuters reports that many major buyers may stop importing Iranian oil if the US sanctions are imposed.

Until the sanctions take effect, however, customers are buying as much crude from Iran as possible and imports of Iranian crude by major Asian buyers was up in May to the highest in eight months.

Trump administration sanctions call for US allies to halt purchases of Iranian crude and the US government is hoping other OPEC producers and Russia will increase their production to compensate for the shortfall resulting from the sanctions.

However, Dominick Chirichella, Director of Risk Management at EMI DTN told Reuters “All the potential shortfalls could outstrip the production increase agreed to by OPEC and Russia”.

An unplanned outage at the 350,000 b/d Syncrude oil sands plant in northern Alberta, as well as a civil war in Libya and constant unrest in Venezuela have tightened the global crude market.  The Syncrude shutdown is expected to last at least through July.

Many analysts think strict enforcement of the US sanctions against Tehran will boost oil prices.

“It is becoming increasingly clear that Saudi Arabia and Russia will struggle to compensate for potential losses in oil production from the likes of Venezuela, Iran and Libya,” Abhishek Kumar, analyst at Interfax Energy told Reuters.

“Triple-digit oil prices are not off the table,” Vienna-based consultancy JBC Energy said.

According to a Reuters survey of 35 economists and analysts, Brent will average $72.58/barrel in 2018, which is 90 cents higher than last month’s poll forecast. So far this year, average Brent prices have been $71.15/barrel.

Baker Hughes released its weekly rig count on Friday.  The US count is down by four oil rigs to 858, and is up by 102 over this time last year.  In Canada, the rig count rose by 14 to 117, five more than this time last year.

Data from the US Energy Information Administration showed US crude output dipped by 2,000 b/d to 10.467 million b/d in April.