Brent crude trades at US$10 premium to US oil amid Iran risk

Nomac Drilling Corp. derrick man, right, climbs down from an overhead platform after connecting a section of drill pipe on a Chesapeake Energy Corp. natural gas drill site in Bradford County, Pennsylvania, U.S. (Bloomberg pic)

LONDON: Brent crude, the global oil benchmark, traded at more than a $10 a barrel premium to US futures as fears of lost Iranian output buoyed one grade and a supply glut undermined the other.

The premium for London-traded Brent, which is more sensitive to global supply disruptions than American prices, was at its highest in more than two months. South Korea has become the first of Iran’s top-three oil customers to cut imports to zero before US sanctions take effect in November. In the US, crude inventories at the storage hub of Cushing, Oklahoma, may have increased for a fifth week, according to estimates compiled by Bloomberg.

“Bullish Europe, bearish US” is the overall sentiment in the market, said Tamas Varga, an analyst at PVM Oil Associates Ltd in London. “The impact of the US sanctions on Iran is firmly being felt” in Europe but “the picture could not be more different on the other side of the Atlantic Ocean.”

Crude prices in London have been supported by the US government’s efforts to constrict Iranian oil sales as it reimposes sanctions after President Donald Trump quit a nuclear deal with the Islamic Republic in May. In the US, crude is piling up in key producing areas as booming shale output overwhelms the capacity of pipelines to transport it to refineries and export terminals.

Both New York and London-traded contracts were buoyed on Tuesday as speculation swirled over whether a giant hurricane approaching the US East Coast would disrupt supplies and drive up fuel prices.

While Hurricane Florence is likely to miss refineries in the Gulf Coast and Philadelphia areas, it could affect the Colonial Pipeline, the main conduit for moving gasoline and diesel from Houston to New York. Drivers may also fuel up before the storm, which could potentially shut distribution terminals in the mid-Atlantic.

West Texas Intermediate for October delivery traded at US$67.87 a barrel on the New York Mercantile Exchange, up 33 cents, at 10.09am in London. The contract dropped 21 cents to US$67.54 on Monday. Total volume traded was about 34% below the 100-day average.

Brent for November settlement rose 67 cents to US$78.04 a barrel on the ICE Futures Europe exchange. The global benchmark crude’s premium to WTI for the same month was at US$10.31, increasing further after closing at the highest level in more than two months on Monday.

October gasoline futures added 1.1% to $1.9805 a gallon, after sliding 0.6% on Monday.

Hurricane Florence, expected to hit the coast between South Carolina and Virginia by the end of this week, could spur brief but probably dramatic spikes in pump prices, according to motoring group AAA. Data provider GasBuddy expects any potential jump to be limited to the Carolinas and Virginia.

“The industry is focusing on Hurricane Florence, and while there are no refineries in the path of the storm, the Colonial Pipeline is prepping for possible power disruptions,” said Stephen Innes, Singapore-based head of trading for Asia Pacific at Oanda Corp. “It could lead to pressure at the pump in the northeast.”