Crude Oil Prices Rise on Concerns of Supply Disruptions
Crude oil prices rose on Tuesday on concerns of supply disruptions that are potentially high, especially in the Middle East.
Crude oil WTI Futures for May delivery rallied 31 cents, or 0.47%, at 66.53 a barrel in Asia. Brent Oil Futures for June delivery were up 26 cents, or 0.36%, at 71.70 per barrel in London.
Crude oil markets were receiving general support due to worries of high risks of supply disruptions. These include a potentially spreading conflict in the Middle East, renewed US sanctions against Iran, and failing output as a result of political and economic crisis in Venezuela.
“With so many potential supply disruptors in play and few signs that the current market upheaval will end any time soon, traders continue to pay the geopolitical risk premium,” said Stephen Innes, head of trading for Asia-Pacific at OANDA in Singapore.
“Oil prices should remain bid … at least through the Iran nuclear deal deadline (May 12) if not for the remainder of 2018,” he said.
On Saturday, the United States, France, and Britain fired 105 missiles targeting 3 chemical weapons facilities in Syria.
Although Syria is not a key oil producer, the wider Middle East is the world’s most important crude oil exporter. But tension in the region tends to put oil markets on worries.
On the other hand, invest worries about Syria is fading. Hoping that the conflict would not further escalate, this urged investors to leave the US dollar. While the currency weakens, this means cheaper oil for importing countries, which in turn boosts demand.
Moreover, crude oil has been well supported this year. Brent was higher around 16% from its 2018-low in February. This was due to healthy demand as a result of the producer cartel of the Organization of the Petroleum Exporting Countries (OPEC) leads supply cuts aimed at tightening the market and propping up prices.
Soaring US Crude Oil Output
Despite OPEC’s restraint and concerns about supply disruptions, the main driver in oil is the US. Crude oil production C-OUT-T-EIA has soared almost a quarter since mid-2016 to 10.53 million barrels per day.
Only Russia produces more oil currently at almost 11 million bpd.
“US shale producers have been quietly capitalizing on higher oil with increasing rig counts seen,” said Phillip Futures’ Benjamin Lu. “A staggering amount of 73 rotary rigs have been placed since January 2018.”
“As such, we expect a softening in crude oil prices as markets adjust from a bullish streak,” he said.
Additionally, crude oil production from 7 major US shale plays is expected to see a climb of 125,000 barrels a day in May to 6.996 million barrels a day. This came from a report from the Energy Information Administration (EIA) released Monday.
The American Petroleum Institute is scheduled to publish weekly US fuel inventory data on Tuesday. And the official government data, including on production, is due from the EIA on Wednesday.