Oil’s rally on political risks sustained by US inventory drop

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Signs of waning U.S. oil inventories are helping sustain price gains after supply threats stemming from geopolitical tensions lifted crude last week to the highest level since late 2014.

Futures in New York rose as much as 1 percent after climbing 0.5 percent Tuesday. An industry group was said to report that U.S. crude stockpiles declined last week, before government data on Wednesday that’s forecast to show a gain. The International Energy Agency warned rising prices risk weakening global oil-demand growth and spurring output, including from American shale fields.

Oil last week rose to the highest level in more than three years as geopolitical tensions surrounding Syria, Saudi Arabia, Iran as well as the U.S. and Russia raised fears of supply disruptions in the energy-rich Middle East. While the frictions have eased slightly this week, the Organization of Petroleum Exporting Countries and allies seem determined to persist with their deal to cut production and curb a glut.

“While tensions surrounding Syria has rallied oil prices recently, the higher oil prices we’re seeing today are driven by fundamentals rather than geopolitics,” Barnabas Gan, an economist at Oversea-Chinese Banking Corp., said by phone from Singapore. Still, “the rally appears to be very fragile, and the fundamentals can quickly swing. Supply is something the market will be monitoring very closely.”

West Texas Intermediate for May delivery climbed as much as 69 cents to $67.21 a barrel on the New York Mercantile Exchange, and traded at $67.08 at 2:39 p.m. in Singapore. The contract climbed 30 cents to $66.52 on Tuesday. Total volume traded was about 2 percent above the 100-day average.

Brent for June settlement added 52 cents to $72.10 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $5.06 premium to June WTI.

American Inventories
Futures for September delivery rose 0.7 percent to 430.3 yuan a barrel on the Shanghai International Energy Exchange. The contract closed 0.7 percent higher at 427.4 yuan Tuesday.

Nationwide crude inventories decreased 1.05 million barrels last week in the U.S., the American Petroleum Institute was said to report, while a Bloomberg survey before Energy Information Administration data on Wednesday predicts an increase of 650,000 barrels. Stockpiles at the key pipeline and storage hub in Cushing, Oklahoma, also dipped by more than 1 million barrels, according to the API numbers, which would be the first drop since early March if confirmed by government data.

There’s a major risk of a supply crisis in Venezuela, according to IEA Executive Director Fatih Birol, as the Latin American nation’s economy continues to deteriorate. Rising prices due to that as well as other political conflicts may prove harmful to OPEC and “output from U.S. shale, Mexico’s deep waters, Brazil and elsewhere” could increase, he said in a Bloomberg television interview from Berlin.

Jeddah Meeting
With American supplies in focus, OPEC and its allies including Russia are scheduled to gather in Jeddah, Saudi Arabia, on April 20 to explore ways of prolonging their cooperation in their efforts to reduce a global glut. Potential measures could include new inventory targets that extend their output cuts, and laying the foundations for an alliance that will last for years. — Bloomberg