Oil rises above US$74 on report of US inventory drop, Iran sanctions

An oil pump is seen operating in the Permian Basin near Midland, Texas, US, May 2017. (Reuters pic)

LONDON: Oil hit a two-week high above US$74 a barrel on Wednesday as an industry report showing a drop in US crude inventories and US sanctions on OPEC producer Iran pointed to tighter supplies.

The American Petroleum Institute reported US crude stocks fell last week by 5.2 million barrels, more than three times the drop analysts expected. The government’s official figures are due at 1430 GMT.

“The API inventory data published after the close of trading yesterday are lending buoyancy to prices,” Commerzbank analyst Carsten Fritsch said.

“Thus the official inventory data this afternoon are also likely to show a more marked inventory reduction.”

Brent crude, the international benchmark, rose US$1.52 to US$74.15 a barrel by 1141 GMT and reached US$74.19, the highest since August 8. US crude gained US$1.38 to US$67.22.

Oil also found support from a weak dollar, which has slipped this week in response to US President Donald Trump’s comment that he was “not thrilled” by the Federal Reserve’s interest rate increases.

A weaker dollar makes oil less expensive for buyers using other currencies.

The prospect of a drop in oil exports from Iran, the third-largest producer in the Organisation of the Petroleum Exporting Countries, in response to new US sanctions is also supporting the market.

European oil companies have started to cut back on Iranian purchases, although Chinese buyers are shifting their cargoes to Iranian-owned vessels to keep supplies flowing.

“The Iran issue continues to occupy traders’ minds,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

OPEC has started to boost supplies following a deal with Russia and other allies in June, although producers have been cautious so far. Saudi Arabia told OPEC it cut supply in July, rather than increasing output as expected.

Signs of tighter supply countered concern about slowing oil demand stemming partly from the trade dispute between the United States and China, the world’s two largest economies.

US and Chinese officials were set to resume talks on Wednesday, but Trump has predicted there will be no real progress.