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

National Post (National Edition) - - FINANCIAL POST - Jes­sica sum­mers

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

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