Oil hits over two-month high on tighter US market, Venezuela sanctions risk

Oil prices have risen around 10 per cent since the last meeting of leading members by the Organization of the Petroleum Exporting Countries (Opec) and other major producers.
Oil prices have risen around 10 per cent since the last meeting of leading members by the Organization of the Petroleum Exporting Countries (Opec) and other major producers. PHOTO: REUTERS

SINGAPORE (REUTERS) - Oil prices hit over two-month highs on Monday (July 31), lifted by a tightening US crude market and the threat of sanctions against Opec member Venezuela.

Brent crude futures, the international benchmark for oil prices, were trading up 24 cents, or 0.5 per cent, at US$52.76 per barrel at 0202 GMT, the highest since May 25.

US West Texas Intermediate (WTI) crude futures were up 15 cents, or 0.3 per cent, at US$49.86 per barrel.

"Strong increases in the price of oil... (were) fuelled in large part by the substantial draw-downs in US inventories over the past several weeks," said Mr William O'Loughlin, an investment analyst at Australia's Rivkin Securities. "A continuation of this trend could indicate the oil market is rebalancing, thanks to the production cuts by Opec and Russia," he added.

After rising by more than 10 per cent since mid-2016, US oil production dipped by 0.2 per cent to 9.41 million barrels per day (bpd) in the week to July 21. US crude oil inventories have fallen by almost 10 per cent from their March peaks to 483.4 million barrels. Drilling for new US production is also slowing down, with just 10 rigs added in July, the fewest for any month since May 2016.

Markets were also concerned by reports that the United States is considering imposing sanctions on Venezuela's vital oil sector in response to Sunday's election of a constitutional super-body that Washington has denounced as a "sham" vote.

Oil prices have risen around 10 per cent since the last meeting of leading members by the Organisation of the Petroleum Exporting Countries (Opec) and other major producers, including Russia, when the group discussed potential measures to further tighten oil markets.

"WTI threatened to break through US$50 per barrel, while Brent pushed above US$52 per barrel as the fundamentals continue to suggest a more balanced crude oil market," ANZ bank said on Monday. "The front of end of the curve has moved into backwardation, a sign the spot physical market is tightening." Backwardation is a market condition in which prices for immediate delivery of a product are higher than those later on.

Brent prices for delivery in September are currently around 35 cents above those for October.

In other oil news, British-Dutch oil giant Shell said on Monday it was temporarily shutting down Europe's biggest refinery after a pre-dawn fire broke out at a power station on the vast site on Sunday.

Flames billowed into the sky over the port of Rotterdam after the blaze erupted at a high-voltage power station at the Shell Pernis refinery. Firefighters brought the fire under control by around 6am (0400 GMT).

Shell could not immediately disclose the extent of the damage, nor when the refinery would return to full capacity. The refinery covers the area equivalent to 800 football pitches, and its pipework, if laid end to end, would be long enough to circle the Earth four times.

The facility can process more than 400,000 barrels of petroleum products a day, but a temporary closure is unlikely to cause any significant fuel shortages, a Shell Pernis spokesman said. "Drivers are not expected to notice a difference (in price) at the gas station," he said.