US oil prices rose by almost two per cent on Monday as the market shifted its focus to supply disruptions and Trump administration sanctions on Iranian crude exports.  Apache photo.

Oil prices up even though OPEC boosted production in July

On Monday, US oil prices rose by almost two per cent after the market shifted its focus to possible supply disruptions and the impending Trump administration sanctions on Iranian crude exports.

By 1:12 p.m., EDT, benchmark Brent crude was up 76 cents to $75.52/barrel and US West Texas Intermediate jumped 1.97 per cent or $1.35 to $70.04/barrel.  The Canadian Crude Index climbed 3 per cent or $1.23 to $42.24.

Prices rose throughout the session despite a Reuters survey showing increased OPEC production in July.  According to the survey, OPEC members boosted their output by 70,000 barrels per day (b/d) to 32.64 million b/d.  This is a record high for 2018.

While rising OPEC production could offset production outages and pressure the crude market, oil prices are currently underpinned by a tight supply outlook.  Global inventories are down from record highs seen in 2017 and US inventories have hit a three-year low, according to Gene McGillian, vice president of market research at Tradition Energy.

“If you take a step back and look at where global inventories and U.S. inventories are, you’re seeing a tighter picture than where we were a year ago,” McGillian told Reuters. “Overall, I think the market is in the process of stabilizing.”

Adding to supply concerns, last week the Saudis announced they were suspending crude shipments through the Bab al-Mandeb strait after Iran-aligned Houthis attacked two ships in the important tanker route.

“The ongoing concerns about the lack of supply coming out of the Bab al-Mandeb strait on top of continued disruption in Venezuela seems to be giving the market momentum, not to mention the potential loss of Iranian supply,” Phil Flynn, analyst at Price Futures Group told Reuters.

Oil prices also got a boost from imminent US sanctions against Iran, which have already started to impact crude exports from the Middle Eastern country.  The Trump administration has given Iran’s crude customers until November to find oil elsewhere or face possible penalties from the United States.

“It is the impact of the U.S. sanctions on Iran that will decide the next $15 a barrel,” Reuters reports PVM Oil Associates Tamas Varga said in a note.

“The best-case scenario is that the U.S. provides meaningful sanction waivers in the run-up to the mid-term elections and Iran can get away with a loss of around 500-700,000 barrels per day of exports. In case, however, President Trump plays hardball and puts its allies and foes under maximum pressure the loss of barrels could amount to 2 million barrels per day.”

Genscape reported that between Tuesday and Friday of last week, crude stockpiles at Cushing, Oklahoma, delivery hub rose by almost 200,000 barrels, undermining a stronger rise in oil prices.