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Why Oil Prices Are at a 4-Year High—And May Soon Go Even Higher

Oil extended gains near the highest level in almost four years as investors grapple with doubts over OPEC’s ability to replace falling exports from Iran.

Futures rose as much as 0.8% in New York after closing Monday at the highest since November 2014. In Iran, crude exports declined to their lowest in 2 1/2 years before the impending return of U.S. sanctions. Meanwhile, the 24-year-old North American Free Trade Agreement will now be superseded by the U.S.-Mexico-Canada Agreement, covering a region that trades more than $1 trillion annually.

“The market’s very keen to figure out the size of impact from the Iranian supply disruptions and whether Saudi Arabia and Russia are able to make up for the losses,” Kim Kwangrae, a commodities analyst at Samsung Futures Inc., said by phone. “At the same time, the U.S.-Mexico-Canada Agreement is also improving the overall sentiment for oil.

Crude has rallied about 16% since mid-August as supply losses from Iran to Venezuela continued to rattle global markets. The Organization of Petroleum Exporting Countries and its allies also showed little enthusiasm for boosting output despite President Donald Trump’s demand for lower prices. While top traders predict oil may reach $100 a barrel, concerns remain over waning demand as the U.S.-China trade row persists.

West Texas Intermediate for November delivery rose as much as 60 cents to $75.90 a barrel on the New York Mercantile Exchange, and traded at $75.87 at 7:36 a.m. in London. The contract surged 2.8% to $75.30 on Monday. Total volume traded was about 33% below the 100-day average.

Brent for December settlement added 30 cent to $85.28 a barrel on the London-based ICE Futures Europe exchange. The contract rose $2.25 to $84.98 a barrel on Monday. The global benchmark crude traded at a $9.58 premium to WTI for the same month.

Observed shipments of crude and condensate from OPEC member Iran dropped to 1.72 million barrels a day in September, down 260,000 barrels a day from the previous month, according to tanker-tracking data compiled by Bloomberg. That’s the lowest since February 2016. With sanctions due to resume on November 4, the sharp drop-off in supply from the Persian Gulf state has helped buoy crude oil prices.

In the Americas, the new trade agreement was secured just before a Sunday midnight deadline, allowing leaders from the three nations to sign the deal by late November. While trade tensions still remain between the world’s two biggest economies, the deal caps a turbulent period for relations between the U.S. and Canada, traditionally close allies on national security and trade.

“The new accord signed by the U.S., Mexico and Canada raises optimism that we may see increased crude flows in the region,” Kim at Samsung said. “It also eases some of the trade concerns that had persisted in the market.”

 

By Bloomberg.

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