MARKET WATCH: Crude prices rise on geopolitical concerns

Benchmark crude oil prices gained modestly while traders and analysts monitored US-Iran tensions. Light, sweet crude oil prices gained to settle above $62/bbl on the New York market on May 15 while the Brent contract for July gained modestly to approach $72/bbl in London.

Benchmark crude oil prices gained modestly while traders and analysts monitored US-Iran tensions. Light, sweet crude oil prices gained to settle above $62/bbl on the New York market on May 15 while the Brent contract for July gained modestly to approach $72/bbl in London.

Meanwhile, US crude oil supplies rose. Inventories for the week ended May 10, excluding the Strategic Petroleum Reserve, increased by 5.4 million bbl from the previous week to 472 million bbl, the US Energy Information Administration reported (OGJ Online, May 15, 2019).

US oil production dropped to 12.1 million b/d. down 100,000 b/d for the week ended May 10 compared with the previous week, said EIA’s Weekly Petroleum Status Report.

Helima Croft, RBC Capital Markets LLC global head of commodity strategy, said risks of a Middle East military confrontation “are rising sharply amid twin attacks on energy assets in the [Persian] Gulf and the US decision to order an evacuation of non-essential personnel from the US Embassy in Baghdad and the consulate in Erbil.”

She cited a growing concern “that the region’s long-simmering cold war may be poised to become a hot one.”

Croft believes rising crude prices reflect “oil’s risk premium” given questions about responsibility for attacks on oil infrastructure near the Hormuz Strait. Four commercial ships, including two Saudi vessels, were sabotaged off UAE’s Fujairah terminal. Two days later, armed drones attacked a Saudi pipeline and two pumping stations.

But Croft also noted US President Donald Trump “continues to display a marked aversion to Middle East military entanglements. Yet, there are actors that appear willing to push the envelope to the brink of war in order to advance their strategic objectives.”

Some analysts note the attacks have yet to cause any actual supply problems.

“To see price support, we need to see supply disruption, and we haven’t seen that,” said Giovanni Staunovo, UBS Wealth Management commodity analyst. “Most of the oil market’s spare capacity sits in the region, so some risk will probably be priced in.”

Ole Hansen, Saxo Bank head of commodity strategy, said tight market conditions are keeping risk to oil prices “skewed to the upside, but this is a market with many moving and opposing parts,” adding, “The picture could change very quickly.”

Energy prices

Crude oil on the New York Mercantile Exchange for June rose 24¢ to settle at $62.13/bbl on May 15 while the July contract climbed 28¢ to settle at $62.35/bbl.

NYMEX natural gas for June fell nearly 6¢ to settle at $2.60/MMbtu.

Ultralow-sulfur diesel for June increased nearly 3¢ to a rounded $2.09/gal. The NYMEX reformulated gasoline blendstock for June gained 3.6¢ to a rounded $2.01/gal.

Brent crude for July gained 53¢ to $71.77/bbl. The August price increased 59¢ to settle at $70.90/bbl.

The gas oil contract for June climbed $14.25 to $650.50/tonne on May 15. The average for the Organization of Petroleum Exporting Countries’ basket of crudes was $71.26/bbl on May 15, up 60¢.

Contact Paula Dittrick at paulad@ogjonline.com.

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