Oil prices rose more than 2 per cent on Tuesday as United States sanctions squeezed Iranian crude exports, and after US crude oil production next year was forecast to grow at a slower rate than previously expected, prompting supply concerns.
Since the Trump administration said it would impose sanctions on Iran, crude traders have priced in a risk premium reflecting the supply shortages that may occur when exports from the third-largest Opec member are cut. As the Nov 4 date for imposing sanctions draws nearer, the premium has increased.
Brent crude futures rose US$1.69, or 2.2 per cent, to settle at US$79.06 a barrel. US West Texas Intermediate crude settled US$1.71, or 2.5 per cent, higher at US$69.25 a barrel.
Prices extended gains in post-settlement trade after industry data from the American Petroleum Institute showed US crude inventories slumped 8.6 million barrels last week, versus analysts' forecasts of a 805,000-barrel decrease.
Official US government data was due to be released yesterday.
Washington has told its allies to reduce imports of Iranian oil, and several Asian buyers, including South Korea, Japan and India, appear to be falling in line. But the US does not want to push up oil prices, which could depress economic activity or even trigger a slowdown in global growth.
US Energy Secretary Rick Perry met Saudi Energy Minister Khalid al-Falih on Monday in Washington, as the Trump administration encourages big oil-producing countries to keep output high. Mr Perry will meet Russian Energy Minister Alexander Novak today in Moscow.
Washington has told its allies to reduce imports of Iranian oil, and several Asian buyers, including South Korea, Japan and India, appear to be falling in line.
But the US does not want to push up oil prices, which could depress economic activity or even trigger a slowdown in global growth.
Russia, the US and Saudi Arabia are the world's three biggest oil producers by far, meeting around a third of the world's almost 100 million barrels per day (bpd) of daily crude consumption.
Mr Novak said on Tuesday that Russia and a group of producers around the Middle East that dominate the Organisation of the Petroleum Exporting Countries (Opec) may sign a new long-term cooperation deal at the beginning of December, the Tass news agency reported. Mr Novak did not provide details.
A group of Opec and non-Opec producers have been voluntarily withholding supplies since January last year to tighten markets, but with crude prices up by more than 40 per cent since then and markets significantly tighter, there has been pressure on producers to raise output.
US crude production is expected to rise 840,000 bpd to 11.5 million bpd next year, lower than a previous expectation for a rise of 1.02 million bpd to 11.7 million bpd, the US Energy Information Administration said in a monthly report.
"Market participants are now evaluating this development in conjunction with potential for further declines in oil output from Iran and Venezuela, which portrays a significantly bullish picture on prices," said senior energy analyst Abhishek Kumar at Interfax Energy in London.