Oil climbs on demand
TENSIONS in Iran. Cold weather in the United States. A year of production cuts. With 2018 still young, there has been no shortage of reasons oil prices are pushing higher.
Prices for Brent crude have risen nearly 50 percent since June, briefly passing $70 a barrel in Asian trading on Tuesday before falling to $69.92 – the first time the per-barrel price had reached $70 since December 2014. A buoyant global economy has bolstered demand, meaning prices could go higher still.
The dynamics at play are in sharp contrast with the situation just a year ago. The market has realigned, in large part because of an agreement between Saudi Arabia and Russia to restrain output.
That deal has removed around 1 million barrels of crude a day from the global supply. At the same time, demand for oil and its associated products has grown at a brisker clip than many analysts expected. The glut of energy worldwide that once filled vast tank farms and supertankers anchored at sea is being worked off.
Without that big inventory, the global energy market has become more sensitive to disruptions. For instance, the shutdown in December of a British pipeline system in the North Sea removed an estimated 9 million barrels of oil from the market over nearly three weeks. The move propelled prices higher. A record-breaking cold snap in the US pushed up demand for heating oil.
But there are additional pressing issues. Although the Trump administration agreed on Friday not to reimpose comprehensive sanctions on Iran, there is concern that the recent crackdown on Iranian protests, coupled with Tehran’s involvement in conflicts in Syria and Yemen, will even- tually be met by tough sanctions from Washington. Such measures would again cut into Iran’s ability to export oil.
Political risks elsewhere are also helping to push prices higher, including tensions between Iraq’s government and the autonomous Kurdish enclave in the north, and the collapse of Venezuela’s oil industry. Both countries are major suppliers of crude and any disruptions there could have a significant impact on global markets.
On the whole, the oil industry appears to be well down the road of having adjusted to the steep price falls that began in 2014 and saw oil dipping to the $30-a-barrel range.
Among the shifts: OPEC has taken a more active role in managing global energy markets, with Russia – which is not a member – unofficially replacing weakened or uncooperative cartel members like Iran, Nigeria and Venezuela.