Oil prices soared on Tuesday after the US Energy Information Administration reported US crude stocks fell significantly last week and the jittery market remains concerned about uncertain Libyan exports and a production disruption in the Canadian oil sands.  Syncrude photo.

Oil prices up as US crude stocks drop by nearly 10 million barrels

US oil prices hit levels not seen since late November, 2014 after the US Energy Information Administration reported US crude stocks had fallen by 10 million barrels last week, compounding market jitters over uncertain Libyan production, a shutdown in the Alberta oil sands and the looming US sanctions on Iran.

By 3:51 p.m., EDT, benchmark Brent futures rose 96 cents to $77.210/barrel and US crude futures $1.78 to $72.31/barrel.  During the session, US WTI futures hit a session high of $72.92/barrel, the highest since November 28, 2014.  Brent crude reached $78.10/barrel during trading.

The Canadian Crude Index climbed 78 cents to $47.69/barrel.

Oil inventories at the Cushing, Oklahoma, delivery hub for crude futures, dropped by 2.7 million barrels last week and gasoline and distillate inventories rose less than anticipated, according to the EIA.

Referring to the drop in stocks, Bob Yawger, director of energy futures at Mizuho said “Cushing is a whopper”.

According to Reuters, the EIA data reflects only one day of the Syncrude shutdown in the Alberta oil sands, which feeds into Cushing-bound pipelines.

“Next week, you’re going to have a Cushing storage number that includes seven days of the Syncude outage. The math there would imply would imply that you’d get an even bigger draw than this week,” Yawger said.

Last week, production at Syncrude was shut down due to a power outage.  The 350,000 barrel per day (b/d) oil sands plant is expected to be offline at least through July.

Analysts say that since the Syncrude shutdown, supplies of heavy crude across North America have been drained and have contributed to a major draw in US crude inventories.

As well as idle production at Syncrude, the market is watching an escalation of tensions in Africa and the Middle East which could result in a disruption to supplies.

Libya is in the midst of a power struggle between the internationally recognized government and rebels.  This has made it unclear who handle’s the country’s crude exports.

As well, with the Trump administration’s sanctions on Iran imminent, the future of Iranian crude exports is hazy as the US has told all countries to halt imports of oil from Iran beginning in November.

Even though there is widespread global opposition to the Trump stance on Iran, analysts expect there will be a significant decline in Iran’s crude exports, possibly in excess of 1 million b/d.

In May, Iran’s crude output hit 3.8 million b/d, according to a Reuters survey.

The unilateral US sanctions against Iran will likely have a “high level of efficiency”, according to Goldman Sachs.

However, risk consultancy firm Eurasia Group said it is “very unlikely” that the US will succeed in cutting Iranian oil sales as quickly as it had hoped.

But, Eurasia Group added “We are increasing our estimate of oil likely to come off the market by November to about 700,000 /d — another bullish factor for prices.”

In response to concerns over falling crude supplies, last week, OPEC announced it will boost its production.  A Reuters’ source says Saudi Arabia says it can ramp up its output to a record high 11 million b/d in July, up from 10.8 million b/d in June.