Oil Closes at 3-Year High on Middle East Risks, OPEC Compliance

Updated on
  • OPEC supply-cut compliance reaches record for 5th month
  • Trump says decision on Syria retaliation to come ‘fairly soon’
IEA Executive Director Fatih Birol, discusses the potential impact of geopolitical tensions on oil.

Oil settled at the highest in more than three years on concern that escalating tensions in the Middle East could lead to conflict and disrupt supplies that are already being reduced by OPEC output cuts.

Futures in New York extended gains above $67 a barrel, having climbed 2 percent on Wednesday to the highest since December 2014. OPEC compliance with output cuts hit a record for a fifth consecutive month. Shipments from the group’s members are expected to fall in the four weeks through April 28, according to tanker-tracker Oil Movements.

President Donald Trump said he’ll meet with national security advisers Thursday to discuss the U.S. response to the alleged chemical weapons attack on civilians by the regime in Syria, and that a decision on any retaliation will come “fairly soon.” Saudi Arabia, the biggest oil exporter, intercepted on Wednesday a ballistic missile fired by pro-Iranian Yemeni rebels over its capital just hours after Trump warned America is preparing to strike Syria.

“The geopolitical noise is as loud as it gets,” said Norbert Ruecker, head of commodity research at Julius Baer Group Ltd. in Zurich.

A measure of oil-price volatility also jumped this week on speculation rising conflict in the Middle East may hinder crude output and shrink global supplies, sending prices above January’s highs. At the same time, concerns persist that surging U.S. production will damp efforts by the Organization of Petroleum Exporting Countries and its allies to tighten the market and prop up prices.

West Texas Intermediate for May delivery rose 25 cents to settle at $67.07 a barrel on the New York Mercantile Exchange.

Brent for June settlement fell 4 cents to $72.02 a barrel on the London-based ICE Futures Europe exchange, after adding $1.02 on Wednesday. The global benchmark crude traded at a $5.07 premium to June WTI.

Yuan-denominated futures for September delivery rose 1.5 percent to 424.4 yuan a barrel on the Shanghai International Energy Exchange.

Geopolitical Tensions

WTI briefly slipped as much as 1.2 percent earlier in the session as the U.S. president said on Twitter that he “never said when an attack on Syria would take place.”

“The oil markets are very much linked to geopolitical tensions, especially if they’re in the Middle East, the heart of global oil exports,” Fatih Birol, executive director of the International Energy Agency, said on Bloomberg Television. “If tensions continue, they will continue to have an impact on the oil market and prices. Definitely, this will be a reason to push the prices up.”

Other oil-market news:

  • Gasoline futures slipped 1.3 cents to $2.0546 a gallon, while diesel fell 0.89 cent to $2.0838 a gallon.
  • OPEC said its oil output fell to the lowest in a year last month amid reduced supplies from Venezuela and Saudi Arabia, suggesting global markets may tighten sharply later this year.
  • U.S. Treasury Secretary Steven Mnuchin signaled on Wednesday the nation may impose “strong” sanctions on Iran as Trump seeks to renegotiate a multinational accord that curbs the Islamic Republic’s nuclear program.
  • Saudi Arabian Oil Co. is looking for more refining partnerships in India, the fastest-growing oil market, as part of a plan to double capacity to produce gasoline and other fuels.
  • Iraq delayed an international auction of rights to 11 of its oil and natural gas deposits, pushing back the bidding date after introducing changes to the contract, according to people familiar with the matter.

— With assistance by Tsuyoshi Inajima, Serene Cheong, Sharon Cho, and Grant Smith

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