Oil Advances for Third Week as U.S. Imposes New Iran Sanctions

  • Treasury Department announced fresh restrictions on Friday
  • OPEC output fell by 840,000 barrels a day in January: survey

U.S. Imposes Fresh Sanctions on Iran

Oil capped a third weekly gain as the U.S. imposed fresh sanctions on Iran after a missile test and OPEC reached about 60 percent of its output-cut target.

Futures climbed 0.5 percent in New York. The new restrictions were announced as President Donald Trump seeks to punish Tehran for its ballistic missile program after warning the Islamic Republic that it’s “playing with fire.” The Organization of Petroleum Exporting Countries cut output by 840,000 barrels a day last month, according to a Bloomberg survey.

"This is a knee-jerk reaction," Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone. "Whenever there are headlines that have something to do with the Persian Gulf you will see a response in the market."

After posting the biggest annual gain in seven years in 2016, oil has fluctuated in the mid-$50s in a tug of war between OPEC cuts and signs of recovering U.S. output. While producers from Saudi Arabia to Angola have implemented cuts and Russia says it’s ahead of schedule with its own reduction, wary investors are also considering that U.S. shale drillers are boosting activity.

West Texas Intermediate for March delivery increased 29 cents to $53.83 a barrel on the New York Mercantile Exchange. Total volume traded was about 27 percent below the 100-day average. Prices rose 1.2 percent this week.

Brent for April settlement advanced 25 cents, or 0.4 percent, to $56.81 a barrel on the London-based ICE Futures Europe exchange. It closed at a $2.34 premium to April WTI. The global benchmark rose 2.3 percent this week.

The Trump administration has sought to take a harder line on Iran, banning its citizens from entering the U.S. and accusing the nation of interfering in the affairs of U.S. allies in the Middle East. But the sanctions announced Friday were limited in scope, serving mostly as a warning signal.

OPEC Reduction

OPEC pumped 32.3 million barrels a day last month, according to the Bloomberg survey. The 10 members of the group that pledged to make cuts implemented 83 percent of those reductions on average, but their efforts were offset by gains from Iran, Nigeria and Libya.

Accounting for the members who raised output and the suspension of Indonesia, OPEC’s total production remains 550,000 barrels a day above the target set out in the Nov. 30 deal. That means the group as a whole is only about 60 percent of the way toward the level it deems necessary to eliminate the global surplus and boost prices.

Oil-market news:

  • The $3.8 billion Dakota Access crude oil pipeline may start operating June 1, assuming no new obstacles prevent it, according to a person familiar with the matter.
  • Phillips 66 suffered its worst quarter since being spun off from ConocoPhillips in 2012 as refining margins shrank and extended plant maintenance reduced volumes.
  • Kazakhstan cut oil output by more than planned in January, deputy energy minister Magzum Mirzagaliev said, according to an e-mailed statement.

— With assistance by Angelina Rascouet

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