After a significant drop in oil prices early in the week, values climbed on Wednesday on tight global supplies, a forecast of a drop in US crude stocks and a weaker US dollar.  Linn Energy photo.

Oil prices rise on expectations of drawdown in US crude stocks

Oil prices rose on Wednesday on concerns of tightening supplies, expectations that data will show US crude inventories dropped last week and a weaker US dollar.

By 3:15 p.m., EDT, Brent crude was up $2.31 to $77.80/barrel and US West Texas Intermediate rose $1.58 to $68.31/barrel.  The Canadian Crude Index dropped 96 cents to $41.83.

On May 17, Brent hit a 3 1/2 year high of $80.50/barrel.  Earlier this week, oil prices were pressured by reports that OPEC and Russia may relax supply cuts by about 1 million barrels per day (b/d) to make up for shortfalls in supply from Venezuela and Iran.

The OPEC deal, implemented in January 2017, cut global crude gluts and increased crude prices.

Years of economic and social upheaval in Venezuela have left the country’s state-run oil company PDVSA unable to pay many of its bills and struggling to produce crude.  According to OPEC, Venezuelan production hit 1.548 million b/d, down from its 1.916 million b/d in 2017 and 2.154 million b/d in 2016.

As well, US President Donald Trump’s decision to abandon the Iran sanction relief agreement will mean sanctions on Iranian crude exports will be reimposed, reducing the amount of crude available on the global market.

On Wednesday, the world’s largest refining complex, India’s Reliance Industries Ltd, said it is planning to halt oil imports from Iran.  Reliance’s decision comes after the Trump administration raised the threat of sanctions against entities dealing with Iran following the three-to-six-month “wind down” period.

While Russia and Saudi Arabia are mulling over boosting production to stave off crude shortages, the Russian central bank issued a statement on Wednesday saying a drop in oil prices would pose a risk to the country’s financial sector.

“It seems that somebody in the central bank is taking notice of the big drop in oil prices and sending a signal of, ‘Hey, wait a second. We don’t want these prices to fall too far – that could pose a risk to the Russian economy’” Phil Flynn, analyst at Price Futures Group told Reuters.

Flynn explained that with sanctions on Iranian crude, “there’s more concern on the Brent side that supply losses from Iran are harder to be made up”.

The US crude discount versus Brent has widened to as much as $9.31 on the Iranian supply concerns and worries about possible Trump administration sanctions against Iranian customers.

A weakening US dollar also helped boost oil prices.  Analysts are also expecting that data from the US Energy Information Administration will show a decline in US crude stocks last week.  Data from the American Petroleum Institute and the US EIA is one day late this week due to the Memorial Day long weekend.

In Brazil, National Oil Workers Federation (FUP) are calling for a nationwide strike on at least 2o oil rigs in the Campos basin and other areas in the South American country.

Protestors are calling for the resignation of Petroleo Brasileiro SA Chief Executive Officer Pedro Parente as well as a change to the company’s fuel pricing policies.  According to the company, crude production has not been impacted by the unrest.