Oil Jumps as Supplies Shrink, Trump Seeks Curbs on Iranian Crude

Oil Jumps as Supplies Shrink, Trump Seeks Curbs on Iranian Crude
Crude surges past $71 for the first time since 2014.

(Bloomberg) -- Crude surged past $71 for the first time since 2014 as American stockpiles shrank and the U.S. told crude buyers to curb purchases from Iran.

Futures in New York climbed 3 percent the day after U.S. President Donald Trump’s said he’s withdrawing from the deal that allowed the OPEC producer to boost exports, and pledged new sanctions. At the same time, a U.S. government report showed the biggest crude inventory drop since March.

Trump “coming forward and not renewing the deal, and adding sanctions back, obviously is very constructive for crude oil prices,” said Nick Holmes, an analyst at Tortoise in Leawood, Kansas, which manages $16 billion in energy-related assets. Today’s “pretty constructive inventory report out of the U.S. is also supportive.”

Sanctions on Iran will be re-instated after wind-down periods of 90 or 180 days, according to the U.S. Treasury. Goldman Sachs Group Inc. sees an upside risk to its oil price forecast following Trump’s actions on Iran. The bank cited geopolitical risks in Saudi Arabia and Venezuela at a time when inventories are falling.

Saudi Minister of Energy and Industry Khalid Al-Falih said he’ll connect with other producers and consumers over the next few days to ensure market stability.

The open question is “how sharp will the teeth of the sanctions be?” said Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida. “That is emerging and still unknown.” Even if the effects of the sanctions are limited, “you have to consider this market to be rather bullish,” he said.

West Texas Intermediate crude for June delivery advanced $2.08 to settle at $71.14 a barrel on the New York Mercantile Exchange, the highest level since November 2014. Total volume traded Wednesday was about 30 percent above the 100-day average.

Brent for July settlement climbed $2.36 to end the session at $77.21 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $6.16 premium to July WTI.

European oil refiners and trading houses began preparing to cut purchases of Iranian crude. The Trump administration has given buyers 180 days to wind down imports after pulling out of a landmark nuclear deal with world powers. Many of the traders and refiners who spoke to Bloomberg anticipate they’ll have to curb purchases unless the European Union can secure waivers.

U.S. Stockpiles

In the U.S., EIA data showed crude stockpiles slid by 2.2 million barrels last week, exceeding a Bloomberg forecast for a 1 million-barrel gain in stockpiles before the report was released. The crude draw was largely due to a decline in imports, which fell by the most since November 2016. At the same time, domestic gasoline and distillate supplies also shrunk.

Traders assessing the impact of the U.S. withdrawing from the Iran deal, combined with issues in Venezuela and a strong U.S. inventory report has led prices to rise, said Craig Bethune, a senior portfolio manager at Manulife Asset Management. “Pretty much everything that could go positive to drive up oil prices has happened over the past few days.”

Other oil-market news:

Gasoline futures added 2.7 percent to settle at $2.1673 a gallon on Wednesday. The International Energy Agency said restoring sanctions on Iran, the world’s fifth-largest oil exporter, “may have implications for the market balance.” Iran is still sticking to its nuclear commitments, according to IAEA inspectors. IAEA says it’s “closely following” developments after U.S. withdrew from JCPOA nuclear deal and reimposed sanctions, according to emailed statement. With President Donald Trump’s decision to reimpose sanctions on Iran driving up oil prices, shale’s less-loved plays are starting to look a bit more promising.

With assistance from Tsuyoshi Inajima and Alexander Kwiatkowski. To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net. To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Catherine Traywick.


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