Oil price steadied below a three-and-half year highs yesterday as resistance emerged in Europe and Asia to United States sanctions against major crude exporter, Iran.
This is even as rising US drilling pointed to higher North American production. Brent crude was up 20 cents at 77.32 dollars a barrel by 1315 GMT and US light crude rose 10 cents to 70.80 dollars.
Both oil futures contracts hit their highest since November 2014 last week at 78 dollars and 71.89 dollars a barrel respectively, as markets anticipated a sharp fall in Iranian crude supply once US sanctions bite later this year.
It is unclear how hard US sanctions will hit Iran’s oil industry.
A lot will depend on how other major oil consumers respond to Washington’s action against Tehran, which will take effect in November.
China, France, Russia, Britain, Germany and Iran all remain in the nuclear accord that placed controls on Iran’s nuclear programme and led to a relaxation of economic sanctions against Iran and companies doing business there.
The surge in oil prices comes at a time of tight supply amid record Asian demand and voluntary output restraint by the Organisation of the Petroleum Exporting Countries and non-OPEC producers, including Russia.
Brent and WTI last week reached their highest since November 2014 at $78 and $71.89 per barrel respectively.
Greg McKenna, chief market strategist at futures brokerage AxiTrader, said, “Around a million barrels of oil a day is likely to disappear from global oil markets if the US sanctions on Iran bite. But it is still far from certain that they will bite in the way intended.
“Germany has said it will protect its companies from US sanctions, Iran has said French oil giant Total has yet to pull out of its fields and all the while it seems the Chinese are ready to fill the void created by the US”.
Markets were also held in check by a rise in US drilling for new oil production. US drillers added 10 oil rigs in the week to May 11, bringing the total count to 844, the highest level since March 2015, energy services firm Baker Hughes said on Friday.
Hedge funds and money managers slashed their bullish wagers on US crude in the latest week to the lowest level in nearly five months, the US Commodity Futures Trading Commission (CFTC) said on Friday, in an indicator that many financial oil traders are doubtful of significant further price rises.
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