Oil rose toward $75 in London after the U.S. announced a tougher crackdown on Iran, seeking to choke off the OPEC member’s crude exports.
Brent futures advanced 0.8 percent to the highest since November after Secretary of State Mike Pompeo said that U.S. sanctions will apply to all purchases of Iranian oil as of next month, ending the waivers currently granted to several customers.
Even though Saudi Arabia promised to help ensure global markets remain adequately supplied, the move stirred fears of shortages and escalating military tensions in the Gulf.
Oil had already climbed almost 40 percent this year as the Organization of Petroleum Exporting Countries and its partners reduced production, both through deliberate cuts and internal strife in a number of members.
Iran’s output has been sliding since American sanctions were reimposed last year, while Venezuela’s plunged because of a chronic economic crisis and Libyan exports are imperiled by a new round of fighting.
“Zero Iranian exports will naturally have an impact on the actual supply in the market at a time that heavy oil supplies are less than usual,” said Sara Vakhshouri, head of Washington, D.C.-based consultant SVB Energy International.
“This is also happening as summer approaches and the U.S. demand for gasoline hits the peak” resulting in “significant consequences on the oil market and prices.”
Brent for June settlement climbed as much as 66 cents to $74.70 a barrel on the London-based ICE Futures Europe exchange, and was at $74.50 a barrel at 10:04 a.m. local time. It rose $2.07 on Monday to $74.04. The global benchmark crude was at a premium of $8.46 to U.S. West Texas Intermediate.
WTI for June delivery rose as much as 64 cents to $66.19 a barrel on the New York Mercantile Exchange. The May contract expired on Monday at a six-month high of $65.70.
The U.S. government, which reimposed sanctions on Iran late last year after President Donald Trump quit a nuclear accord with the Islamic Republic, won’t renew waivers for eight countries when they expire on May 2, Pompeo said on Monday.
Although Trump’s administration had already made clear its desire to drive Iranian crude exports to zero, the halt is much more sudden than widely anticipated, Goldman Sachs Group Inc. said. Iranian exports could be slashed by as much as 60 percent, to just 500,000 barrels a day, according to Helima Croft, chief commodities strategist at RBC Capital Markets LLC in New York.
Pompeo said he’s confident the oil market will remain stable and that Saudi Arabia -- the world’s biggest crude exporter -- along with the United Arab Emirates and the U.S. itself will provide an “appropriate supply” of oil. Saudi Energy Minister Khalid Al-Falih said the kingdom and other suppliers will ensure the market doesn’t get out of balance.
The Saudis and the U.A.E. can boost their combined output by about 1.5 million barrels per day within a short period, according to people familiar with the matter, who asked not to be identified as the information is private.
Nonetheless, “the Saudi response was extremely non-committal,” Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. said in a Bloomberg television interview. The kingdom will move cautiously, having bolstered production last year when the U.S. similarly pledged to halt Iranian flows, only to backpedal at the last minute.
In a sign of the increased geopolitical tensions in the region, a senior Iranian military official said that if the Islamic Republic is denied access to the Strait of Hormuz -- a critical waterway in the Persian Gulf -- it will shut the strait, the state-run Fars news agency reported.
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