LONDON: Oil traded near the highest level in more than three years amid growing risks to supply around the world and despite President Donald Trump’s pressure on Saudi Arabia to pump more.
While Trump tweeted Saturday that Saudi King Salman bin Abdulaziz had agreed effectively to boost oil production to the kingdom’s maximum capacity, the White House moderated his assertion that evening. Concerns remain that even if the Saudis pumped at this level, it might not be enough to offset the impact of renewed US sanctions on Iran. Libya faced deeper disruptions after its National Oil Corp. announced that two key oil ports would be unable to continue shipments.
Oil rallied 8.1% last week as the US pushed allies to halt imports of Iranian crude, compounding concerns over tightening supply amid shrinking American inventories and disruptions in Canada and Libya. Although Saudi Arabia promised at an OPEC meeting earlier this month to fill in the supply gap, the losses may be growing too large for the kingdom to offset.
“Saudi Arabia’s spare capacity would be entirely exhausted” if the kingdom followed Trump’s request, said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “As soon as market participants realize that there is no more scope for further production increases, prices will continue to rise.”
West Texas Intermediate crude for August delivery was 38 cents lower at US$73.77 a barrel on the New York Mercantile Exchange as of 1.33 pm London time. It earlier declined as much as US$1.64 to US$72.51. Prices rose 70 cents to US$74.15 on Friday, the highest close since November 2014. Total volume traded Monday was 13% above the 100-day average.
The price for August futures was US$1.80 higher than the September contract, gaining for a 10th day in a market structure known as backwardation that signals a shortage.
Brent for September traded at US$78.36 a barrel, 87 cents lower, after falling as much as 1.6% to US$77.99 on the London-based ICE Futures Europe exchange. The August contract, which expired Friday, added 5.2% last week. The global benchmark traded at a US$6.41 premium to WTI for September, with the spread expanding for a second day.
Libya’s losses total 850,000 barrels a day — roughly 80% — after the Tripoli-based NOC said oil loadings at the Zueitina and Hariga export terminals in eastern Libya have stopped and that it has declared force majeure for the terminals. The halt comes just a week after the country’s ports of Es Sider and Ras Lanuf were shut down.
On Friday, oil prices in New York and London jumped, fueled by major disruptions to production in Canada and internal conflict in Libya. The re-imposition of sanctions on OPEC’s third-largest producer, Iran, and the economic crisis in Venezuela are adding to concerns of reduced global supply.
“Prices are likely to become more volatile over the coming months, caught between two narratives: oversupply concerns, and concerns over dwindling spare capacity,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich.
Trump tweeted that Saudi Arabia had agreed to pump 2 million more barrels a day. While the White House and the Saudi Press Agency followed with statements that neither side cited a specific target, oil prices fell as traders speculated that even a chance of a Saudi boost would probably pare prices.
Trump’s latest intervention follows sporadic criticism of OPEC by the US president, who accuses the cartel of keeping prices artificially high at the expense of crude buyers. It also adds to complaints from China, the biggest oil consumer, and India, which has the fastest-growing appetite for energy, after prices rose despite OPEC’s June 22 decision to ease output cuts.
Separately, Mexicans elected Andres Manuel Lopez Obrador, their first left-wing president in decades. Lopez Obrador has said he’ll scale back reforms that have attracted oil majors. He’s also said that he may suspend new oil auctions, will review contracts already awarded and could temporarily freeze fuel prices — measures that could reverse efforts by the current government to boost crude production and lure foreign investors.