Crude hits US$80 As investors zero in on shrinking surpluses

NEW YORK• Oil rallied to US$80 a barrel in London for the first time since late 2014 amid mounting signs that global stockpiles are shrinking.

Brent crude futures climbed as much as 1.5 per cent Thursday as OPEC’S output curbs tightened global surpluses and the outlook for shipments from Venezuela and Iran worsened. The rally in New York fizzled, as record output from shale fields and a drilling ramp-up limited the scope for gains. The widening gap between the global benchmark and American prices encouraged unpreced- ented exports of U.S. oil.

The worldwide glut has been eradicated and “OPEC still hasn’t said anything about ending the deal early, which is only good for markets,” said Ashley Petersen, lead oil analyst at Stratas Advisors in New York. As for the U.S., “we’ve been having plenty of exports to kind of alleviate any sort of glut here. There seems to be just enough crude and it’s all finding a home to go to.”

Oil this month has touched levels last seen more than three years ago after the U.S. pulled out of the Iran nuclear accord, conflicts in the Middle East intensified and Venezuela’s decline as a major supplier was heightened by Conocophillips freezing the country’s exports. Saudi Arabia Energy Minister Khalid Al-falih and United Arab Emirates Energy Minister Suhail Al Mazrouei expressed concern over the oil market volatility, saying recent moves in oil prices have been driven by geopolitics.

Brent for July settlement added 2 cents to settle at US$79.30 a barrel on the London-based ICE Futures Europe exchange, after earlier reaching US$80.50, the highest intraday level since November 2014. The global benchmark crude traded at a US$7.73 premium to West Texas Intermediate for delivery the same month, the biggest front-month spread since 2015.

“When you think about it, with the pipeline bottlenecks happening in the U.S., these barrels have to be priced to sell and you have to keep that export window open,” said Michael Tran, a commodities strategist with RBC Capital Markets in New York. “The bottom line here is this WTIBrent spread will ultimately remain relatively wide over the course of the summer.”

THESE BARRELS HAVE TO BE PRICED TO SELL AND YOU HAVE TO KEEP THAT EXPORT WINDOW OPEN. — MICHAEL TRAN