Published: Tue, September 25, 2018
Markets | By Otis Pena

Oil jumps 2 % as market tightens, more gains seen

Oil jumps 2 % as market tightens, more gains seen

Opec, which was meeting in Algiers on Sunday to discuss how to share out an increase in output to bring down prices, sees the U.S. as soaking up most of the growth in production over the next 10 years.

J.P. Morgan says USA sanctions on Iran could lead to a loss of 1.5 million bpd, while Mercuria warned that as much as 2 million bpd could be knocked out of the market. However, the consensus has now moved to as much as 1.5 million barrels daily as the "incredibly serious" about its measures, he said.

Benchmark Brent crude hit its highest since November 2014 at $80.94 per barrel, up $2.14 or 2.7 percent, before easing back to around $80.65 by 1000 GMT.

"I do not influence prices", Saudi Energy Minister Khalid al-Falih told reporters on Sunday.

OPEC has come under pressure to raise output amid a steep downturn in supply among some of its biggest exporters.

Somebody is going to be wrong on the outlook for the crude oil price, as the market can not be well-supplied and increasingly tight at the same time. Trafigura Group co-head of oil trading Ben Luckock sees $90 oil by Christmas and $100 in early 2019.

Saudi Arabia and Russian Federation won't add significantly more oil to the market because of a lack of capacity, a top Iranian official said on Monday, predicting prices will probably rise further. The biggest source of new global supply, US shale, is also experiencing growing pains as pipeline bottlenecks and workforce issues hamper growth.

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Instead, the meeting agreed to stick to the previously agreed output, with Kuwait's Oil Minister Bakheet Rashidi saying the JMMC will fully conform with the Vienna deal, at least until the next meeting in November and December.

Oil has rallied since the lows of August as speculation swirls over whether OPEC and its allies will boost production, with sanctions on the Middle East nation's exports set to take effect in November.

The OPEC oil cartel raised its global production forecast on Sunday based on higher-than-predicted United States output in a report outlining a long-term rise in net demand, particularly in developing countries. The US president has called it a "monopoly" and urged it to "get prices down now".

"OPEC is struggling to battle through a flawless storm of strong demand and bigger-than-expected supply losses", said Daniel Hynes and Soni Kumari, Commodity Strategists at ANZ Bank last week.

Brent crude futures were at 79.84 dollars per barrel.

But if prices really are expected to rise sharply in the coming months on the back of the USA sanctions against Iran, it may make sense to buy longer-dated oil at the current prices.

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