Brent crude hits 2019 high on heightened supply concerns

Brent crude hits 2019 high on heightened supply concerns

Crude prices rose to a five-month high on Tuesday, as Washington’s decision to end sanctions waivers on Iranian oil imports buoyed markets for a second day and sent shares in some of the world’s biggest energy companies higher.

Brent crude, the international oil benchmark, rose as much as 0.8 per cent to $74.64 a barrel, adding to gains on Monday to reach its highest level since early November before falling back slightly to $74.43 by late morning in London. West Texas Intermediate, the US marker, increased 0.7 per cent to $66.02.

Oil’s sharp rally boosted European oil majors, with BP rising 2.3 per cent and Royal Dutch Shell 1.9 per cent higher in London after investors returned from Monday’s bank holiday. Overall, the Stoxx 600 index of European oil and gas groups was on course for its best day in nearly four months, up 1.9 per cent.

Shares in major airlines, which are particularly sensitive to fluctuating fuel prices, suffered. EasyJet fell 4.2 per cent, while British Airways parent company IAG was down 3.8 per cent. Ryanair slipped 4.6 per cent and was on course for its worst day since December.

The moves came after the Trump administration announced the end of waivers from US sanctions granted to India, China, Japan, South Korea and Turkey, some of Iran’s largest customers. The US is now demanding that countries no longer import any oil from Iran.

Oil prices jumped despite the White House insisting that it had worked with Saudi Arabia and the United Arab Emirates to ensure sufficient supply to offset the loss of Iranian exports. UBS said it expects Saudi Arabia and its allies “to cautiously react to customers need rather than preemptively ramp up production,” but noted that there is still plenty of capacity to offset a decline in Iranian exports.

Brent crude is now almost 50 per cent above late December’s 17-month low, as the Opec cartel of oil producers have cut production, and sanctions on Iran and Venezuela have tightened supply in global markets. “Amid seasonally higher oil demand into the summer, the oil market is likely to be very sensitive to any further disruptions in Libya, Venezuela or Nigeria,” UBS analysts said in note.

Goldman Sachs said the timing of the sanctions tightening was “much more sudden” than expected, but it played down the longer-term impact on the market.

“While we acknowledge the near-term upside price risks, we reiterate our fundamentally derived Brent price trading range of $70-75 per barrel for the second quarter of 2019,” Goldman analysts said in a note. The bank highlighted the relatively small move in oil prices given the loss of up to 1.3m barrels a day of Iranian exports. This reflects “a much greater confidence in available spare capacity,” Goldman said.

In currency markets, the Norwegian krone and Canadian dollar both rose against the US dollar as currencies of oil-exporting countries gained. Wall Street saw its biggest one-day rise for the energy sector since January on Monday, with the S&P 500’s energy sector rising 2.1 per cent.

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