According to the news report by Reuters, price of oil went up by Wednesday, despite the fact that US inventories are going up. This is because of the concern that the upcoming November oil sanctions on Iran by the United States is going to impede oil producers’ ability to fill the shortfall that will be left by Iran.
Because of these concerns, the international benchmark, the Brent crude futures were up by 2 cents to trade at $79.05 per barrel after having gained 1.3% the day before. This gain happened after the news was released that Saudi Arabia, the world’s number one oil exporter, announced that it was fine with oil prices being above $80 per barrel.
The United States benchmark for crude oil, the West Texas Intermediate also gained in price, going up by 1.4% to trade at $70.00 per barrel.
According to Tamas Varga, a strategist with PVM Oil Associates, the question is not about the price movements being justified, rather, the current dictator of crude oil’s price is the ability of producers to supply the amount of oil actually needed.
Varga further expanded by saying that the current trade war between the US and other countries should have impacted the price of oil. However, that war is not having an impact on crude oil. It only goes to underline the fact that the market is currently much more sensitive to developments related to oil supply.
The strategist also said that he expected this trend to continue for at least the next 6 weeks until the second round of US sanctions take effect in November.
This continued focus on the supply of crude oil can also been seen in the options markets so far this week. Investors are going in for large amounts of call options.
According to the Intercontinental Exchange’s data, investors are showing a great deal of interest in calls that are giving the owners the right to purchase Brent futures at the rate of $80 per barrel and $85 per barrel for next week. This data showed that this interest grew by 45% since the beginning of this week, reaching about 54 million barrels of crude.
The members of the Organization of the Petroleum Exporting Consortium (OPEC) as well as other major oil producing countries are going to meet on September 23 in Algeria to see how supply increases can be allocated within the prescribed quota framework so that loss of oil from Iran can be mitigated.
While buyers have already reduced their purchases of Iranian oil due to the US sanctions, it is not clear yet how other oil producing countries will be able to compensate for the loss of supply. Thus, despite the fact that US inventories, which had slipped in the last couple of week and are now once more rising, the concern that is topmost on investors’ minds is how global supply will be met. And this is what is driving prices at the moment.
Matters have not been helped by Saudi Arabia’s reported comment at the beginning of this month that the kingdom is okay with oil prices remaining steady between $70 per barrel and $80 per barrel.
According to ANZ Bank’s analysts, this comment by the world’s biggest oil supplier indicates that Saudi Arabia is not going to be responding aggressively to rising prices by increasing their oil production and increasing supply.
According to data from the American Petroleum Institute, the crude oil inventories in the United States for the week of September 14 have gone up by 1.2 million barrels to a total of 397.1 million barrels.