Diplomatic crisis, looming Iran sanctions drive Brent above $80

Kingdom to bump up production to 10.7mbpd, energy minister says

Brent crude edged above $80 (Dh294) a barrel on yesterday, lifted by nervousness over a worsening diplomatic crisis between Saudi Arabia and the West, just two weeks before US sanctions potentially choke off Iranian crude supplies.

Saudi energy minister Khalid Al Falih told Russia’s TASS news agency that his country had no intention of unleashing a 1973-style oil embargo on western consumers, but rather was focused on raising output to compensate for supply losses elsewhere, such as Iran.

Several US lawmakers have suggested imposing sanctions on Saudi Arabia over the disappearance of Saudi journalist Jamal Khashoggi, while the kingdom, the world’s largest oil exporter, pledged to retaliate to any sanctions with “bigger measures”.

Al Falih said Saudi Arabia would soon raise output to 11 million barrels per day (bpd) from the current 10.7 million.

He added that Riyadh had capacity to increase output to 12 million bpd and Gulf Opec ally, the UAE, could add a further 200,000 bpd.

Benchmark Brent crude oil futures rose 45 cents (Dh1.65) on the day to $80.23 a barrel by 0900 GMT, while US crude futures rose 31 cents to $69.43 a barrel.

“Politics are coming into the picture and maybe this is what [the Saudis] will do, but as far as next year’s supply/demand balance is concerned, it’s not justified for them to increase production,” PVM Oil Associates strategist Tamas Varga said.

Supply at risk

US sanctions on Iran’s oil sector start on November 4 and analysts believe anything up to 1.5 million bpd in supply could be at risk.

“The big unknown is how much Iranian oil will be off the market and we’ll know in about a month’s time. Then we’ll have a clearer picture of what to expect for the first quarter of next year,” Varga said.

Opec agreed in June to boost supply to make up for the expected disruption of Iranian exports.