Oil Rises Again on U.S.-Iran Tensions

05/16/19 10:05 AM EDT
By Dan Molinski 

-- Oil prices increased for a third straight day Thursday as rising tensions between the U.S. and Iran fueled worries of a disruption to Middle East oil supplies and shipments.

-- West Texas Intermediate futures, the U.S. oil benchmark, were 1.4% higher at $62.91 a barrel on the New York Mercantile Exchange.

-- Brent crude, the global oil benchmark, was 1.4% higher at $72.76 a barrel on London's Intercontinental Exchange.


Iran: Oil is 2% higher so far this week as investors tack on a risk-premium to crude prices after a U.S. official said Iran was likely behind recent attacks on oil tankers in waters off the United Arab Emirates, something Tehran has strenuously denied. On Wednesday, the Trump administration ordered a partial withdrawal of its diplomats from Iraq, as Washington warned of heightened threats from Iran and Tehran-backed Shiite militias.

Also, Iran-allied Houthi rebels in Yemen fighting a Saudi-backed coalition claimed responsibility for an attack on a major oil pipeline in Saudi Arabia. The kingdom denounced it as an act of terrorism, but didn't directly blame Iran.

The rising tensions come after the Trump administration increased oil sanctions on Iran, saying that as of the beginning of May, no countries could buy Iranian crude oil. Iran responded by calling the sanctions "unacceptable," and indicated plans to begin to walk away from agreements made in a 2015 nuclear deal.

"The attacks on Saudi tankers and Iran ending its nuclear commitments have escalated turmoil in the region," said Alfonso Esparza, senior market analyst at Oanda. He added that beyond the geopolitics, prices were also being supported by U.S. sanctions against both Iran and Venezuela, which have reduced the amount of crude available on the global market.

Inventories: With so much focus on geopolitics, oil markets mostly disregarded a bearish weekly report Wednesday from the Energy Information Administration that showed commercial inventories of crude oil in the U.S. have climbed to a 20-month high of 472 million barrels. "Ultimately it appeared to be geopolitical forces that saw prices shrug off a couple of more bearish signals, including U.S. crude stocks rising by some 5 million barrels last week -- up to the highest level since September 2017 -- while the latest forecasts released by the IEA involved a reasonably significant cut to 2019 oil demand growth," analysts at JBC Energy said in a note to clients.


OPEC: Oil markets were beginning to gauge how the attacks on the Saudi oil tankers might impact an important meeting in late June of the Organization of the Petroleum Exporting Countries. The OPEC group, along with some non-OPEC producers including Russia, agreed in late December to cut oil production to reduce supplies and boost prices, but prices are now about $10 to $15-a-barrel higher.

"It is unclear what OPEC's decision will be in terms of supply cuts, and the decision will most likely depend on Iranian production and global supply-demand levels," said analysts at Austin, Texas-based Drillinginfo. "Until then, both bearish and bullish headlines and rising geopolitical tensions and their potential impact on oil supply will most likely cause volatility and be the main drivers for prices."


-- Baker Hughes is due to release its weekly rig-count report on Friday at 1 p.m. ET.

Write to Dan Molinski at Dan.Molinski@wsj.com


(END) Dow Jones Newswires

May 16, 2019 10:05 ET (14:05 GMT)

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