Oil jumps as market tightens, more gains seen

Gladys Abbott
September 24, 2018

"It is now increasingly evident, that in the face of producers reluctant to raise output, the market will be confronted with supply gaps in the next 3-6 months that it will need to resolve through higher oil prices", BNP Paribas oil strategist Harry Tchilinguirian told Reuters Global Oil Forum.

Sunday's meeting in Algiers brought together OPEC oil ministers and non-OPEC signatories to the 2016 agreement as they seek to extend their cooperation.

OPEC's leader Saudi Arabia and its biggest oil-producer ally outside the group, Russia, ruled out on Sunday any immediate, additional increase in crude output, effectively rebuffing U.S. President Donald Trump's calls for action to cool the market.

Looking ahead, crude oil prices await the release of US Energy Information Administration and Department of Energy inventory figures later this week.

OPEC and Russian Federation have capped production since January 2017 to bolster prices.

Brent for November settlement rose as much as US$2.14 to US$80.94 a barrel on the ICE Futures Europe exchange and traded at US$80.66 at 9:58 a.m.in London. That suggests OPEC's power to influence the market will be tempered by USA production for about another decade.

"They are doing little and late, to get prices higher", he said.

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Saudi Arabia Energy Minister Khalid al-Falih told reporters that participating countries have provided over the last three months "a lot of supply to offset decreases" in Iran, Venezuela and Mexico.

Oil at US$100 may not be sustainable in the longer-term because demand may be threatened by the U.S. "The reason Saudi Arabia didn't increase more is because all of our customers are receiving all of the barrels they want".

The September quarter of the year is typically the strongest for global crude demand, a situation that has been exacerbated this year by the looming reintroduction of economic sanctions on Iran from early November, including the nation's crude exports, contributing to recent strength in prices.

"All this will potentially reflect on oil prices".

"It's going to be significantly less than it was, and probably lower than most people expected when the sanctions were announced - hence the higher prices", Luckock said at the APPEC event. The biggest source of new global supply, USA shale, is also experiencing growing pains as pipeline bottlenecks and workforce issues may hamper growth, he said.

"Were they do so the oil market would be even more uncomfortably tight than we forecast for 2019 as spare capacity is eroded", Mr Bell added.

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