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Sunday 22

July, 2018 3:14 PM



Oil prices reach more than three-year high

Oil prices reach more than three-year high

The price of oil has risen on the back of supply concerns due to US sanctions that could cause a large drop in crude exports from Iran.

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By AAP 29.06.2018 07:32 AM

Oil prices have climbed with US crude hitting a three-and-a-half year high, bolstered by supply concerns due to US sanctions that could cause a large drop in crude exports from Iran.

West Texas Intermediate (WTI) crude futures rose 69 US cents, nearly one per cent, to settle at $US73.45 a barrel. It reached $US74.03 earlier in the session, the highest since November 26, 2014.

Brent crude futures rose 23 UScents to settle at $US77.85 a barrel.

The United States this week demanded countries halt imports of Iranian oil from November, a hardline position the Trump administration hopes will cut off funding to Tehran.

On Thursday, officials said they would work with countries on a case-by-case basis. China, the biggest importer of Iran's oil, has not committed to the US position.

"The sanctions are trying to isolate Iran a bit more, and that potentially cuts more oil off from the overall global arena as a whole," said Mark Watkins, a regional investment strategist at US Bank Wealth Management.

"If you're having Iran's oil taken off the market, then you have a decrease in supply and by all means, that's going to put more pressure on the price of oil to move up."

The US demands follow a decision by the Organisation of the Petroleum Exporting Countries last week to increase production to try to moderate oil prices that have rallied more than 40 per cent over the last year.

Oil prices have rallied for much of 2018 on tightening market conditions due to record demand and voluntary supply cuts led by OPEC and other producers including Russia.

Unplanned supply disruptions from Canada to Libya and Venezuela also have supported prices.

U.S crude futures extended gains after data showed inventories at the Cushing, Oklahoma, delivery hub fell by 3.1 million barrels in the week through June 26, traders said, citing data from market intelligence firm Genscape.

Front-month WTI's premium to the second month surged after the data and hit a session high of $US1.81, while US crude's discount to Brent narrowed to the smallest in three months at $US3.92 a barrel.

"You look at the front spreads for crude oil, and it's been the front-month contracts that have blown out, almost like this is a knee-jerk reaction to a headline versus a long-term structural uptrend that is still intact," said Brian LaRose, senior technical analyst at ICAP-TA.

Not all indicators point toward an ever-tightening market. US crude production is approaching 11 million barrels per day (bpd), and Saudi Arabia expects to match that in coming months as well.

But analysts say the market has little spare capacity to deal with further disruptions.

"With inventories still declining and spare capacity uncomfortably low, there is very little cushion for any supply disruption caused by rising geopolitical risks," ANZ bank said.

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