Global oil prices firm on Middle East tensions

OPEC reiterates support of cuts as rising US crude output looms over market

Oil prices were firm on Tuesday, supported by concerns that tensions in the Middle East could lead to supply disruptions, although further rises expected in US crude output loomed over markets.

US West Texas Intermediate crude futures were at $65.77 a barrel at 17:15, up 28 cents, or 0.43 percent, from their previous settlement.

Brent crude futures were at $70.17 per barrel, up 5 cents, or 0.1 percent.

James Mick, managing director and energy portfolio manager of asset management firm Tortoise, said that “rising geopolitical tensions” were driving up oil prices. The biggest risk was that the US could re-introduce sanctions on Iran.

“Crude also received support from Organization of the Petroleum Exporting Countries (OPEC) members as Saudi Arabia and Russia both reiterated goals to extend the production cut agreement,” Mick said.

Iraq, the second-biggest producer within OPEC, said on Monday that it also supports the producer cartel’s agreement to cut oil output.

OPEC, together with a group of non-OPEC producers led by Russia, started withholding production in 2017 in order to prop up prices. The deal to cut is scheduled to last through 2018, and there has been recent support by OPEC’s de-facto leader Saudi Arabia to even extend the cuts into 2019.

Yet some traders cautioned that such a move faces opposition.

Stephen Innes, head of trading for the Asia-Pacific region at futures brokerage OANDA based in Singapore, said there was “considerable resistance” as current or higher prices opened the possibility that even more US shale producers could come back online.

US crude production – thanks largely to shale or tight oil drilling – has already jumped by almost a quarter since mid-2016 to 10.4 million barrels per day (bpd), taking it past top exporter Saudi Arabia and within reach of top producer Russia, which pumps around 11 million bpd.

“For oil, we expect the supply deficit of the past couple of quarters to give way to a surplus, driven largely by strong growth in US tight oil supply,” Britain’s Barclays bank said on Tuesday.