Crude oil prices jumped more than two per cent to a four-year high yesterday after Saudi Arabia and Russia ruled out any immediate increase in production despite calls by United States President Donald Trump for action to raise global supply.
Benchmark Brent crude hit its highest since November 2014 at $80.94 per barrel, up $2.14 or 2.7 per cent, before easing to around $80.65 per barrel.
United States light crude was $1.30 higher at $72.08.
The leader of the Organisation of Petroleum Exporting Countries (OPEC), Saudi Arabia and its biggest oil-producer ally outside the group, Russia, on Sunday effectively rebuffed a demand from Trump for moves to cool the market.
“I do not influence prices,” Saudi Energy Minister Khalid al-Falih told reporters as OPEC and non-OPEC energy ministers gathered in Algiers for a meeting that ended with no formal recommendation for any additional supply boost.
Trump said last week that OPEC “must get prices down now!”, but Iranian Oil Minister Bijan Zanganeh said yesterday that OPEC had not responded positively to Trump’s demands.
Commodity traders Trafigura and Mercuria said yesterday that Brent could rise to $90 per barrel by Christmas and pass $100 in early 2019, as markets tighten once US sanctions against Iran are fully implemented from November.
Since May when the Trump administration said it would impose sanctions on Iran, traders have been focusing on the impact they could have on global supply.
President Trump had later tweeted that the sanctions were “the most biting sanctions ever imposed”.
“Anyone doing business with Iran will NOT be doing business with the United States,” he added.
The sanctions, which will be re-imposed after a 180-day “wind-down period,” ending November 4, target Iran’s US dollar purchases, metals trading, coal, industrial software and its auto sector.
While the US said it wants as many countries as possible to stop buying Iranian oil, many European countries as well as China and India, oppose the sanctions.
The sanctions are already brewing a potential confrontation between the US and Iran as Tehran has threatened to block the Strait of Hormuz, an important sea route through which tankers ship more than 30 per cent of crude oil to the international market, in retaliation to the sanctions.
But the US military had promised to counter any blockade of the Gulf passageway.
Iran’s President, Hassan Rouhani had responded during a rare visit to Europe last month that Tehran could disrupt regional crude shipments and cut its cooperation with the UN nuclear watchdog.
JPMorgan said US sanctions on Iran could lead to a loss of 1.5 million barrels per day, while Mercuria warned that as much as 2 million bpd could be knocked out of the global market.
OPEC as well as top producer Russia has been discussing raising output to counter falling supply from Iran, although no decision has been made public yet.
A source familiar with OPEC discussions told Reuters on Friday that OPEC and other producers have been discussing the possibility of raising output by 500,000 bpd.
United States commercial crude oil inventories are at their lowest since early 2015 and although US oil production is near a record high of 11 million bpd, subdued US drilling points towards a slowdown in output.