Tug boats transport a Hess Corp oil platform near Ingleside, Texas. The US recently became the world’s biggest oil producer, surpassing countries like Russia and Saudi Arabia. Image Credit: Bloomberg

Abu Dhabi: Oil prices, already at four-year highs, are expected to jump further due to supply concerns following US sanctions on Iran, according to analysts.

Brent, the global benchmark rose by more than 2 per cent on Monday at more than $80 (Dh293.84) per barrel, the highest since November 2014. US crude West Texas Intermediate was up by 1.85 per cent at $72.09 per barrel.

“This morning’s Brent rally to a fresh multi-year high was always on the cards. We have consistently argued that price risks remain skewed to the upside in the run up to looming US sanctions on Iranian oil exports,” Stephen Brennock, a London-based analyst from brokerage firm PVM Oil Associates, told Gulf News.

$72.09
a barrel, price of US crude West Texas Intermediate

“This outlook has been cemented by inaction on the part of Opec and its allies over the weekend which has in effect greenlighted a forthcoming supply squeeze.”

The Organisation of the Petroleum Exporting Countries (Opec) and non-Opec members including Russia ruled out an additional increase in oil output to offset Iranian supplies despite calls from the US President Donald Trump to increase production to cool the market.

At a meeting in Algiers on Sunday, Saudi Arabia’s energy minister Khalid Al Falih said markets are adequately supplied and there is no need to increase production to meet the demand.

“My information is that the markets are adequately supplied. I don’t know of any refiner in the world who is looking for oil and is not able to get it,” Al Falih told reporters after the meeting in the Algerian capital that was also attended by officials and ministers from oil-producing countries including Russia, the UAE, Kuwait and Oman, among others.

1.8mbd
Iran oil exports in August against 2.2mbd in July

In a tweet last week, Trump criticised Opec and said the group is pushing for higher oil prices and they “must get prices down now!”,

Brennock expects the current bout of upward buying pressures to prevail throughout the year-end period but he does not foresee oil hitting the $100 mark due to a rise in shale-oil production from the US.

“As ever, the US shale patch will limit the upside and will make a rally to $100 tough going,” he added.

The US recently became the world’s biggest oil producer, surpassing countries like Russia and Saudi Arabia.

US oil production is expected to rise further in the coming days as shale producers adding more rigs to increase output.

But there are also concerns that demand could be severely hampered if Brent reaches $100 per barrel.

“If Brent was to reach $100 per barrel, this could inevitably be a short-term phenomenon as [at] these prices, demand growth be severely hampered, through a combination of enhanced efficiency and a slowdown in the global economy,” Ehsan Khoman, head of Mena Research and Strategy at MUFG Bank in Dubai, said.

“Moreover, higher oil prices could prompt the US to consider extraordinary measures such as the usage of the US Strategic Petroleum Reserves to taper US gasoline prices ahead of the US mid-term elections in early November.”

Khoman expects the current and aggressive US threat of sanctions to force a further 550,000 to 800,000 barrels of oil per day of Iranian crude off the market by November.

Current Iranian crude exports have fallen to 1.8 million barrels per day (mbd) in August from 2.2 million barrels per day in July, with many countries reducing Iranian imports to avoid being penalised by the US government.

Commodity traders Trafigura and Mercuria said on Monday that Brent could rise to $90 per barrel by Christmas and pass $100 in early 2019 as markets tighten once US sanctions against Iran are fully implemented from November.