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Crude Advances as Alarm Bells Sound Over Impending Supply Crunch

Commodities Oct 05, 2018 10:30AM ET
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(Bloomberg) -- Oil headed for the longest run of weekly gains since the start of 2018 amid concern that Saudi Arabia and Russia may not pump enough crude to prevent a supply crunch as Iranian cargoes disappear from world markets.

Futures climbed as much as 0.9 percent in New York on Friday. Prices may hit $100 this autumn as U.S. pressure stymies exports from Iran, OPEC’s No. 3 producer, according to Russian Energy Minister Alexander Novak. Saudi Arabian Energy Minister Khalid Al-Falih said the kingdom is boosting production and will supply needy refiners.

“We’re just seeing a lot of fear about future supply,” said Ashley Petersen, senior oil market analyst at Stratas Advisors LLC.

Saudi Arabia is juggling intense pressure from U.S. President Donald Trump to boost output and ease high prices. The kingdom has lifted production almost to a record and may raise it again next month, although doing so will infringe on available spare capacity, limiting Saudi Arabia’s ability to react to other supply shocks.

“The Saudis won’t flood the market and they don’t want to see it oversupplied,” said Giovanni Staunovo, an analyst at UBS Group AG. “Their demand is picking up because Iran volumes are falling. But the price for the Saudi strategy to cover those supply losses are extreme low spare capacity, and that worries the market.”

West Texas Intermediate for November delivery rose 47 cents to $74.80 a barrel at 10:13 a.m. on the New York Mercantile Exchange. Prices have advanced 2.2 percent for the week, capping the longest streak of weekly increases since January.

Brent for December settlement was little changed at $84.50 on the London-based ICE Futures Europe exchange. The contract was up 2.2 percent this week. The global benchmark crude traded at a $9.96 premium to WTI for the same month.

Russia’s Novak was not alone in predicting a return to three-digit price levels last seen in 2014. As Iran’s customers cut purchases and Venezuela’s industry struggled, trading giant Mercuria Energy Group Ltd. said last month Brent may spike over $100 in the fourth quarter and Trafigura Group expects it in early 2019. While Goldman Sachs Group Inc (NYSE:GS). isn’t that bullish, the Wall Street bank sees a risk of oil holding above $80 toward the end of the year.

Crude Advances as Alarm Bells Sound Over Impending Supply Crunch
 

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