Oil prices surge as Saudis, Russia won't open spigots

Marco Green
September 24, 2018

With Brent crude already jumping to an nearly four-year high on Monday, that's exactly the kind of price surge President Donald Trump has been seeking to prevent by pressuring the Organization of Petroleum Exporting Countries to raise production.

Somebody is going to be wrong on the outlook for the crude oil price, as the market can not be well-supplied and increasingly tight at the same time.

Saudi Arabia leads the Opec oil cartel, while Russian Federation is the biggest oil producer outside the group.

The threats of disruption as well as the early supply cuts have helped to lift Brent crude futures to almost $80 a barrel this month, a level not seen since 2014.

Oil leaped after the world's top producers chose to maintain output during a meeting in Algeria at the weekend.

The lack of OPEC's immediate action could mean higher prices.

While viewing high demand as healthy, the organisation noted that the trend was fuelled by developing countries undergoing major demographic and general economic expansion.

Further, oil prices are likely cheering the signs of tightening in the U.S. market ahead of Iran sanctions.

A source familiar with OPEC discussions told Reuters on Friday that OPEC and other producers had been discussing the possibility of raising output by 500,000 bpd.

Speaking to Bloomberg, Zanganeh warned that some oil producers are trying to create an alternative suppliers' forum that supports USA policies hostile to the government in Tehran. "As a result, significant EM oil demand destruction could follow if Brent crude oil spikes above $120/bbl".

U.S. West Texas Intermediate crude for October delivery fell 8 cents to 70.24 dollars a barrel. Money managers' wagers on higher Brent crude prices are having their longest streak since November 2017, according to ICE Futures Europe data.

Ben Luckock, co-head of oil trading at fellow merchant Trafigura said crude oil prices could rise to $90 per barrel by Christmas and to $100 by the New Year as markets tighten.

The bank said it expects Brent and WTI to average US$85 and US$76 per barrel, respectively, over the next six months.

Accompanied by seasonal strength in demand, especially in large emerging markets such as China, India and Brazil, they said it's left the global crude market as "tight as a drum" with price risks seemingly to the upside.

Other reports by Click Lancashire

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