Crude Prices Hit Three-Year Highs On Supply Concerns

By Christopher Alessi Features Dow Jones Newswires

Oil prices ticked up Wednesday morning on the back of ongoing antigovernment protests in Iran.

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Brent crude, the global benchmark, was up 0.2%, at $66.68 a barrel on London's Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.2% at $60.49 a barrel.

Antigovernment demonstrators have taken to the streets in cities across Iran over the past week to voice anger over the country's economic woes. The protests, which have left more than 20 people dead, have reignited a geopolitical risk premium in global oil markets amid concerns the civil unrest could result in crude supply disruptions out of the Islamic Republic.

The "potential escalation out of Iran" is supporting oil prices, said Ole Hansen, head of commodity strategy at Saxo Bank.

"With geopolitical risk driving the market, the appetite of selling ahead of a potential spike is limited," he added.

So far, "protests in Iran have had no impact on the country's oil production or oil shipments," according to analysts at Commerzbank.

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But they cautioned the situation could change if the U.S. were to impose fresh sanctions on the Iranian regime or dismantle the 2015 international agreement to curb Iran's nuclear program.

"This justifies a certain risk premium on the oil price, though this should already be more than sufficiently reflected in the current price level," the Commerzbank analysts wrote in a note Wednesday.

The unrest in Iran comes as oil prices have been steadily climbing in recent months, helped by geopolitical risk throughout the Middle East--including in Iraq--as well as declining global inventories and OPEC's continued efforts to curb production.

The Organization of the Petroleum Exporting Countries--of which Iran is the third-largest member--and 10 producers outside the cartel, including Russia, agreed in November to extend a deal to cut crude output by nearly 2% through the end of this year. The original accord was first struck a year ago as part of strategy to rein in the global supply glut and boost prices.

Crude prices also faced some downward pressure Tuesday, as the Forties Pipeline System in the North Sea came fully back online. The pipeline, which transports 450,000 barrels of North Sea oil a day, was shut down in mid-December due to a hairline pipe crack, tightening supply and buoying prices.

Among refined products, Nymex reformulated gasoline blendstock--the benchmark gasoline contract--was down 1.82%, at $1.76 a gallon. ICE gasoil, a benchmark for diesel fuel, changed hands at $600.50 a metric ton, up 0.59% from the previous settlement.

Write to Christopher Alessi at christopher.alessi@wsj.com

Corrections & Amplifications

This article was corrected at 1711 GMT because the original incorrectly stated the deal was through the end of next year in the tenth paragraph. The Organization of the Petroleum Exporting Countries -- of which Iran is the third-largest member -- and 10 producers outside the cartel, including Russia, agreed in November to extend a deal to cut crude output by nearly 2% through the end of this year.

The Organization of the Petroleum Exporting Countries -- of which Iran is the third-largest member -- and 10 producers outside the cartel, including Russia, agreed in November to extend a deal to cut crude output by nearly 2% through the end of this year. "Iran Unrest Continues to Buoy Crude Prices" at 6:27 a.m. ET, incorrectly stated the deal was through the end of next year in the tenth paragraph. (Jan. 3, 2018)

Oil prices rose to a three-year high on Wednesday as ongoing antigovernment protests in Iran and a blast of cold weather raised concerns about potential supply disruptions.

Light, sweet crude for February delivery gained $1.26, or 2.1%, to $61.63 a barrel on the New York Mercantile Exchange, the highest settle value since December 2014. Brent, the global benchmark, advanced $1.27, or 1.9%, to $67.84 a barrel.

Antigovernment demonstrators have taken to the streets in cities across Iran over the past week to voice anger over the country's economic woes. The protests, which have left more than 20 people dead, have reignited a geopolitical risk premium in global oil markets amid concerns the civil unrest could result in crude supply disruptions out of the Islamic Republic.

While the protests have yet to affect oil production, analysts cautioned the situation could change if the U.S. were to impose fresh sanctions on the Iranian regime or dismantle the 2015 international agreement to curb Iran's nuclear program.

"This justifies a certain risk premium on the oil price, though this should already be more than sufficiently reflected in the current price level," the Commerzbank analysts wrote in a note Wednesday.

Meanwhile, a major winter storm this week helped support prices for crude and products, on worries that freezing temperatures could affect refinery infrastructure and lead to a spike in demand for materials such as diesel and heating oil.

"Everybody's happy to be owning" crude, said Donald Morton, senior vice president at Herbert J. Sims & Co., who oversees an energy trading desk. "There's nothing to stop it at the moment."

Traders are also looking to government data to be released Thursday, detailing the amount of crude sitting in storage. Analysts and traders surveyed by The Wall Street Journal on average expect that stockpiles declined by 4.7 million barrels in the week ended Dec. 29.

The American Petroleum Institute, an industry group, said late Wednesday that its own data for the week showed a 5-million-barrel decrease in crude supplies, a 1.9-million-barrel rise in gasoline stocks and a 4.3-million-barrel rise in distillate inventories, according to a market participant.

Potential supply disruptions have become more pronounced in recent months, as the global glut that plagued the oil market for years has steadily diminished.

The unrest in Iran and geopolitical risk throughout the Middle East -- including in Iraq -- has helped push oil prices higher amid declining global inventories and continued efforts by major oil exporters to curb production.

The Organization of the Petroleum Exporting Countries -- of which Iran is the third-largest member -- and 10 producers outside the cartel, including Russia, agreed in November to extend a deal to cut crude output by nearly 2% through the end of this year. The original accord was first struck as part of strategy to rein in the global supply glut and boost prices.

At the same time, expectations for global demand have strengthened as economies around the world have shown strong growth.

"Part of this rally has been a real rise in demand last year and demand prospects for this year," said John Kilduff, managing partner at Again Capital.

Gasoline futures rose 1.9% to $1.7974 a gallon and diesel futures gained 1.4% to $2.0880 a gallon, closing at the highest level since February 2015.

Write to Stephanie Yang at stephanie.yang@wsj.com and Christopher Alessi at christopher.alessi@wsj.com

(END) Dow Jones Newswires

January 03, 2018 17:03 ET (22:03 GMT)