Crude Oil Price Surges Above $75, Highest Since November 2014

Crude oil prices yesterday surged to their highest levels since late 2014, as a result of the moves by the United States oil major, ConocoPhillips to take over Caribbean assets of Venezuela’s state-run PDVSA to enforce a $2 billion arbitration award, in addition to a looming decision on whether the United States will re-impose sanctions on Iran.

At the session high, the global benchmark, Brent crude futures touched their peak since November 2014 at $75.91 per barrel, before settling at $75.81 per barrel.

Also the United States West Texas Intermediate (WTI) crude oil futures rose 69 cents to $70.40, the first time since November 2014 that WTI had climbed above $70.

Reuters also reported that China’s Shanghai crude oil futures, launched in March, broke their dollar-converted record high, touching $72.54.

Supporting prices is the possibility that the United States might re-impose sanctions on Iran, OPEC’s third-largest producer, which could result in further supply reductions from the Middle East.

There is widespread expectation that US President Donald Trump will withdraw from the Iranian nuclear pact, which could curtail Iranian’s oil exports by up to 300,000 bpd.

Trump has a May 12 deadline to determine whether to extend sanction waivers. British Foreign Secretary, Boris JohnsonisintheUnitedStatesinaneffort to convince the Trump administration to stay in the deal.

Also boosting prices is US oil major ConocoPhillips’ plan to take over Caribbean assets of Venezuela’s state-run PDVSA to enforce a $2 billion arbitration award, a move that could deal a further blow to the company’s declining oil output and exports.

Venezuela’s oil output has halved since the early 2000s to 1.5 million barrels per day (bpd), hit by a lack of investment.

Saudi Arabian Energy Minister, Khalid al-Falih, said he was concerned about possible shortages of spare crude oil production capacity.

But US output has soared by more than a quarter in the past two years to 10.62 million bpd and is likely to rise further this year as energy companies keep drilling.

However, Russian Energy Minister, Alexander Novak, pledged Russia’s 100 percent compliance in May with an OPEC-led pact to reduce production.

OPEC had on November 27, 2015, decided to pump as much as it could to defend market share, an action that sent the price of oil to a low of $27 per barrel in February 2016.

With the drop in oil price to an all-time low, OPEC and other major producers including Russia started to withhold output in 2017 to rein in oversupply that had depressed prices since 2014.

OPEC’s main objective for the cuts is to eliminate a global surplus in oil stocks and re-balance the market.

OPEC, together with Russia and a group of other producers, last November extended an outputcutting deal to cover all of 2018.

The production-cutting pact between the OPEC, Russia and other producers has given strong tailwind to oil prices.

The initial deal, under which OPEC and non-OPEC producers are cutting supply by about 1.8 million barrels per day, had expired in March 2018.

The cartel will then meet on June 22, 2018 to review its oil production policy.

After falling from an all-time high of $147 per barrel in July 2008, Brent crude price had hit a peak of $115 per barrel in June 2014 before the excess inventory in the oil market forced the price down to $27 per barrel in February 2016.

WTI also reached a peak of $105 per barrel in June 2014 before the sharp drop in oil prices.