Brent crude hits new 3½-year high as sanctions' impact unclear

Saul Bowman
May 16, 2018

West Texas Intermediate was up 0.86% to $71.89 a barrel.

Elsewhere, supply concerns have been mounting over the last week after President Donald Trump the USA pulled out of the Iran nuclear deal - a move that reimposes sanctions on Iranian barrels.

Danish oil product tanker operator Torm on Tuesday said it has stopped taking new orders in Iran as a outcome of US plans to reimpose sanctions on Tehran. Investors are watching whether OPEC and its allies such as Russian Federation intend to end output cuts and increase production if renewed American measures restrict the Persian Gulf state's exports. The rising oil prices are also giving the government a headache as a chunk of its annual budget will now be required in its purchase, thereby compromising on other social sectors.

US light crude was 15 cents lower at $70.81 a barrel, also not far off its highest since November 2014, in a volatile session.

Despite Wednesday's dips and some indicators implying the financial oil has overshot physical oil, overall crude market conditions have tightened since 2017 when the Organization of the Petroleum Exporting Countries (OPEC) started to withhold supplies to push up oil prices. Total volume traded Tuesday was about 45% above the 100-day average. Prices on Monday gained $1.11 to close at $78.23.

Brent futures advanced as much as 1.6%. The global benchmark crude traded at a $7.30 premium to July WTI. The contract fell 1.2% on Monday.

OPEC, for its part, estimated that the excess oil inventories in the OECD had shrunk to just 9 million barrels. The numbers provided by the kingdom indicate that it could increase production by about 190,000 bpd and still respect the limit agreed with fellow members if it decides to compensate for the loss of Iranian barrels.

The rally has been fueled by speculation that OPEC will continue to cut production, particularly in the failing state of Venezuela.

Fifty-five Palestinians were killed in confrontations with Israeli troops Monday after tens of thousands converged on the Gaza Strip border to protest the U.S. embassy. With more than 1,200 people wounded by live fire, it was the deadliest day in Gaza since Hamas's last war with Israel in 2014.

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