Oil hovers near $80, supply concern expected to underpin prices

Oil hovers near $80, supply concern expected to underpin prices

Oil hovers near $80, supply concern expected to underpin prices

U.S. crude stocks increased by 1.2 million barrels according to the American Petroleum Institute (API), sharply reversing the market forecast of -2.7 million barrels, raising prospects for a widening premium in the Brent versus WTI with crude runs worsening in Europe and Asia.

Iran remains "a very important exporter of oil", said the chief of the Organization of the Petroleum Exporting Countries.

Crude is averaging about $72 a barrel this year, and the International Energy Agency warned last week that prices could rise above $80 unless producers compensate for lost supply from OPEC members Iran and Venezuela.

Data from the InterContinental Exchange showed open interest in calls that give the owner the right to buy Brent futures at $80 and $85 by next week grew by almost 45 percent on Monday and Tuesday to an equivalent of 54 million barrels of oil.

The focus on oil supply has been reflected in the options market this week, where investors have scooped up large amounts of buy or call options, suggesting they see prices rising.

Reuters reported on September 5 that Saudi Arabia wants oil to stay between $70 and $80 a barrel to keep a balance between maximizing revenue and keeping a lid on prices until US congressional elections.

The warning came from the group's top official as looming unilateral USA sanctions on oil sales by Iran, OPEC's third-biggest supplier, are scheduled to take effect on November 4.

South Korea, a major importer of Iranian crude in the past, hasn't shipped any oil from Iran for 75 days. "As countries like South Korea stop using crude from the Islamic Republic, Saudi Arabia is going to try and fill that gap and we will see less capacity in the global supply chain of crude".

The producer group said in June that it would agree to some supply increases starting in July, though the specific targets were not announced at the time.

Increases in both crude oil prices and in net OPEC oil exports drove revenues higher in 2017, and the EIA expects that revenues will continue to increase in 2018, based on its August 'Short-Term Energy Outlook'.

China, one of the world's largest oil consumers, on Tuesday added $60 billion of USA products to its import tariff list.

The supply concerns outweighed an increase in oil inventories in the United States reported late on Tuesday.

Official U.S. government data is due to be released on Wednesday.

"Traders are ignoring today's API data given while focusing on news from the Middle East", Stephen Innes, head of Trading for APAC at OANDA wrote in a note.

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