Oil jumps to four-year high

Ann Santiago
September 27, 2018

Oil prices hit a four-year high of $81.48 a barrel on Tuesday after Saudi Arabia and Russian Federation appeared to reject calls from the United States to increase production amid looming sanctions against Iranian oil.

Brent crude- the benchmark for more than half the world's oil - rose 2.5 per cent today, the highest since November 2014. Bank of America Merrill Lynch joined JPMorgan Chase & Co.in anticipating higher prices down the line - the former expects crude to reach $95 a barrel in the first half of next year.

"The OPEC and the Middle Eastern producers' actual crude production capability is up ... but it's the disruption in supply and exports [such as the economic sanctions on Iran and Venezuelan economic turmoil] that's supporting the oil prices", said Chris Midgely, global director of analytics at Platts.

Abdelmoumen Ould Kaddour, chief executive officer for Algeria's state-owned Sonatrach Group, told media that "Trump tweets are disturbing, but fortunately this time he did not have an impact on the OPEC decision; the price of oil is subject to many variables, not only the tweet from the president of the U.S". Word has gotten out that the JMMC, operating beyond its mandate, is to provide a figure for increasing oil supply under the pretext of the so-called "offsetting shortages caused by Iran's Production Reduction'".

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 market.

Oman's oil minister Mohammed bin Hamad Al-Rumhy told reporters on Saturday that OPEC and non-OPEC producers overachieved on pledged output cuts by 600,000 bpd in August, putting the reduction at around 2.4 million bpd.

Those fears have sent crude oil prices higher, with commodity traders Trafigura and Mercuria predicting prices could rise to more than $100 a barrel by early next year. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

In addition, we have to remember we're dealing with a massive decline in Venezuelan oil.

But the joint OPEC and non-OPEC ministerial committee known as the JMMC, which meets on Sunday, can still recommend a further increase in output if needed, the sources said.

Major oil trading houses are predicting the return of US$100 crude for the first time since 2014 as OPEC and its allies struggle to compensate for USA sanctions on Iran's exports.

When Trump in May announced plans to reimpose sanctions on Iran's oil exports, the market estimated a cut of about 300,000 to 700,000 barrels a day, according to Trafigura's Luckock. Analysts say Trump wants to try to head off higher gasoline prices that could hurt Republican candidates in the November elections.

The official further said the U.S. could tap into its own strategic reserves to compensate for the missing Iranian oil volumes.

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