Oil rose after Saudi Arabia and other OPEC+ members signaled their intention to keep supplies constrained, while U.S. President Donald Trump ratcheted up tensions with Iran.
Futures in New York jumped as much as 1.7%, before paring some of those gains. Saudi Energy Minister Khalid Al-Falih urged members of OPEC+ gathered in Jeddah to “stay the course” on output cuts. Meanwhile, just weeks after the U.S. tightened sanctions on Iranian crude exports, Trump tweeted: “If Iran wants to fight, that will be the official end of Iran.”
Oil has rallied almost 40% this year as production cuts outweigh demand concerns caused by trade tensions between the U.S. and China. Saudi Arabia and fellow oil producers have to balance their desire to maintain high crude prices with the need to fill any supply gaps caused by rising geopolitical risks and disruptions in Venezuela, Libya and Iran.
“Prices will ultimately need to go higher,” but “OPEC is walking a bit of a tightrope here,” Morgan Stanley analyst Martijn Rats said in a Bloomberg Television interview. “On the one hand, we have some meaningful risks to supply in a number of countries — Iran, Venezuela, potentially Libya — but then on the other hand, we also have some demand weakness coming through.”
West Texas Intermediate crude for June delivery rose as much as $1.05 to $63.81 a barrel on the New York Mercantile Exchange, and traded at $62.96 as of 10:36 a.m. London time. The contract added 1.8% last week, the biggest weekly increase since early April.
The June contract expires on Tuesday. The more actively traded July contract rose to as high as $63.96.
Brent for July settlement climbed 31 cents to $72.52 a barrel on the London-based ICE Futures Europe exchange, after advancing 2.3% last week. The global crude benchmark traded at a $9.38 premium to WTI for the same month. Brent’s prompt spread remains in a strong backwardation, indicating tight supply.
“We need to stay the course, and do that for the weeks and months to come,” Saudi Arabia’s Al-Falih told reporters after the meeting in Jeddah on Sunday. The kingdom “isn’t fooled” by crude prices and believes the market is still fragile.
Meanwhile, Russian Energy Minister Alexander Novak sent mixed signals. Russia, the most important non-OPEC partner in the coalition, is ready to consider easing production cuts if the market needs more crude, Novak said. Still, Russia would comply with any agreed output limit in the second half of 2019, he said.
In the U.S., working oil rigs fell by three to 802 last week, the lowest since March 2018, according to oilfield-services provider Baker Hughes. Government data last week showed U.S. crude production dropped for a second week to 12.1 million barrels a day.
Other oil-market news: Saudi Arabia isn’t seeing as much demand for oil as expected from Iran’s customers, as a lot of crude has been leaving the Persian nation without being accounted for since the U.S. imposed sanctions. OPEC’s largest producer also said it does not want a war with Iran but will respond “with strength and determination” if Iran decides to start one. Governments worldwide also see a war as unlikely. The evacuation of some Exxon Mobil Corp. workers from Iraq is “ unacceptable and unwarranted” because it has nothing to do with the security situation in the southern part of the country, according to Oil Minister Thamir Ghadhban.