Crude oil prices rose Monday with the global benchmark, Brent crude settling at $75 per barrel, as traders kept the focus on global supply disruptions and the effects of the United States’ sanctions on Iran.
The price of Brent crude was actually up 76 cents at $75.52 per barrel, while the US West Texas Intermediate (WTI) crude rose by $1.51 to settle at $70.21 per barrel.
Despite the hike in crude oil production by 70,000 barrels per day to 32.64 million barrels per day in July, the highest in 2018, the price of oil has risen in recent weeks.
Reuters reported that the prices remain buoyed by a tight supply outlook, with global inventories down from record highs in 2017 and US inventories at a three-year low.
The supply of crude oil to the international market has suffered disruptions in the Middle East.
Saudi Arabia last week said it was suspending oil shipments through the Red Sea’s Bab al-Mandeb strait, one of the world’s most important sea routes for crude oil, after Yemen’s Iran-aligned Houthis attacked two ships in the waterway.
Oil traders said prices pulled back after information supplier, Genscape reported that inventories at Cushing, Oklahoma, the delivery hub for US crude, rose almost 200,000 barrels, or nearly one per cent, from Tuesday to Friday last week.
But the prices have rebounded from recent lows over the last two weeks, as looming sanctions on Iran have already started to curtail exports from that country.
Supporting prices is the possibility that the United States might re-impose sanctions on Iran, OPEC’s third-largest producer, which could result in further supply reductions from the Middle East.
OPEC had on November 27, 2015, decided to pump as much as it could to defend market share, an action that sent the price of oil to a low of $27 per barrel in February 2016.
But following the drop in oil price to an all-time low, OPEC and other major producers, including Russia started to withhold output in 2017 to rein in oversupply that had depressed prices since 2014.
OPEC’s main objective for the cuts is to eliminate a global surplus in oil stocks and re-balance the market.
OPEC, together with Russia and a group of other producers, last November extended an output-cutting deal to cover all of 2018.
The initial deal, under which OPEC and non-OPEC producers are cutting supply by about 1.8 million barrels per day, had expired in March 2018.
The production-cutting pact between the OPEC, Russia and other producers has given strong tailwind to oil prices
However, the cartel and its allies agreed last month to boost supply as US President Donald Trump urged producers to offset losses caused by new US sanctions on Iran and to dampen prices, which had hit $80 per barrel earlier this year, the first time since 2014.
On June 22-23, OPEC, Russia and other non-members agreed to return to 100 per cent compliance with oil output cuts that began in January 2017, after months of underproduction in Venezuela and elsewhere pushed adherence above 160 per cent.
Saudi Arabia said the decision would translate into an output rise of about one million bpd.
OPEC’s collective adherence with supply targets has slipped to 111 per cent in July from a revised 116 per cent in June, the survey found, meaning it is still cutting more than agreed.