Oil prices rose to multiyear highs on Tuesday, bolstered by signs that major oil producers are still committed to reducing supply and the rising specter of U.S. sanctions against Iran.
On the New York Mercantile Exchange, June West Texas Intermediate crude CLM8, +0.73%[1] added 53 cents, or 0.7%, to $71.49 a barrel after trading as high as $71.69.
July Brent crude oil LCON8, +0.91%[2] the European and global benchmark, gained 73 cents, or 0.9%, to $78.94 a barrel. Its finish at $78.23 a barrel on ICE Futures Europe a day earlier was the highest since late November 2014.
The Organization of the Petroleum Exporting Countries reduced its forecast for global oil production in its most recent report. Although the group said its crude output inched up in the previous month, investors interpreted the minimal increase as a sign of OPEC’s continued commitment to rebalancing the market, especially from its de facto leader Saudi Arabia.
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“The Saudi’s are signaling that they would be relaxed with the scenario in which they temporarily over tighten the market,” said Paul Horsnell, the head of commodity research at Standard Chartered. “Coupled with no signs of new supply coming on, demand remaining strong as well as the geopolitical turmoil in Iran and you have the conditions for this push up towards $80” a barrel.
Turmoil in the Middle East and U.S. trade sanctions against major oil producer Iran have also supported crude.
Analysts project that oil exports from Iran could be reduced by about 0.5 million barrels a day as South Korea and Japan trim their imports, said analysts for J.P. Morgan in a recent report.
Still, “We don’t expect China to reduce its imports of crude from Iran given their long-term signed contracts and the ability to pay in yuan,” said Abhishek Deshpande, the head of oil market research & strategy at J.P. Morgan.
Overall, Asia’s biggest economy is expected to drive global demand and has shown a healthy appetite for crude despite its refineries undergoing maintenance.
“The apparently high April intake figures released yesterday—runs barely fell month-on-month despite a 800,000 barrel a day increase in refinery maintenance—surprised us,” said analysts for JBC Energy in a recent report.
Investors will be looking ahead to data on U.S. shale oil production, which has been projected to reach a record 7.18 million barrels a day in June, according to official data. New figures from the U.S. Energy Information Administration and the International Energy Agency will be released on Wednesday.
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