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Crude Oil Takes a Breather After Surging on Iran Sanctions

Updated on
  • Bank of America says $100 possible next year on supply risks
  • WTI crude futures slip back below $71 a barrel Friday
Oil prices are likely to trend higher, says BMO Global Asset Management’s Morgane Delledonne.

Oil slipped, narrowing a second weekly gain, as traders consider the potential supply impact of renewed U.S. sanctions on Iran.

Futures in New York dipped back below $71 a barrel Friday, trimming this week’s increase to 1.4 percent. Saudi Arabia is ready to work with other producers to mitigate any impact of a shortage after U.S. President Donald Trump decided to exit a 2015 nuclear accord and hit OPEC’s third-largest producer with sanctions intended to curb its exports. U.S. crude production pushed to a fresh all-time high as explorers put the most drilling rigs to work in 3 1/2 years.

Crude’s recent rally has been driven by a deepening regional conflict in the energy-rich Middle East and Trump’s hawkish stance on Iran. Goldman Sachs Group Inc. said the sanctions could push prices above its forecasts and Bank of America Corp. sees a possibility oil could rise to $100 a barrel next year. Israel said it conducted the biggest raid in at least three decades at Iran’s military facilities inside Syria.

“There is at least a narrative building out there that OPEC is more likely than not going to signal to the market that it is willing to increase production to compensate for any losses to world supply from these sanctions,” said Bart Melek, head of global commodity strategy at TD Securities in Toronto.

West Texas Intermediate crude for June delivery fell 66 cents to settle at $70.70 a barrel on the New York Mercantile Exchange. Total volume traded was about 2.3 percent below the 100-day average.

Brent for July settlement slipped 35 cents to $77.12 a barrel on the London-based ICE Futures Europe exchange. Prices gained 3 percent this week. The global benchmark crude traded at a $6.44 premium to July WTI.

U.S. working oil rigs rose by 10 this week to 844, the highest since March 2015, according to data from Baker Hughes. So far this year, the American rig fleet has expanded in every week but four.

Futures for September delivery on the Shanghai International Energy Exchange dropped 1.1 percent to 471.2 yuan a barrel. The contract is up 5.4 percent this week, heading for a fifth straight weekly advance.

See also: American Oil Exports Flip Influence in Iran Enforcement: Goldman

Some refiners and oil traders are already starting to look for alternatives to Iranian barrels. China’s Ministry of Commerce said Friday it’s engaged in mutually beneficial oil trading with Iran based on commercial factors, without elaborating whether it was going to persist with or curb imports. The U.S. has given buyers 180 days to wind down shipments from the Middle East producer to avoid penalties.

“Supply concerns have lifted oil prices,” said Norbert Ruecker, head of market and commodity research at Julius Baer Ltd. in Zurich. “We see the main impact on the oil price through the market mood -- geopolitical noise and escalation fears.”

Oil-market news:

  • Gasoline futures rose 3.5 percent this week to $2.1888 a gallon, the biggest weekly gain in about a month.
  • Oil tanker owners are facing a nervous wait to find out whether they can carry on doing business with Iran after Trump’s announcement on Tuesday.
  • Kazakhstan’s Tengiz and Karachaganak oil projects are planning maintenance shutdowns between August and October, according to the energy ministry. Output at Tengiz rose 1.4 percent in the first quarter from a year earlier.

— With assistance by Tsuyoshi Inajima, Heesu Lee, Grant Smith, and David Wethe

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