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Crude Oil Hits Fresh Highs on Spot Tightness, Iran Worries

Published 02/12/2021, 11:41 AM
Updated 02/12/2021, 11:42 AM
© Reuters.

By Geoffrey Smith 

Investing.com -- Crude oil prices reversed overnight losses by mid-morning Friday in New York, as faith in the global demand rebound revived and concerns mounted about a looming in the stand-off between the West and Iran.

By 11:30 AM ET (1630 GMT), U.S. crude futures were up 1.2% at $58.89 a barrel, while Brent crude futures were up 1.3% at $61.92 a barrel, a new 13-month high.

Earlier in the week, the International Atomic Energy Agency had confirmed that the Islamic Republic has now resumed making uranium metal, in violation of the UN-backed accord that President Joe Biden has said he wants to revive.

The European parties to that accord, the Joint Comprehensive Plan of Action, issued a joint statement on Friday warning that “Iran has no credible civilian justification for these activities, which are a key step in the development of a nuclear weapon."

Iran’s increasingly aggressive revival of its nuclear activities not only complicates any chance of lifting U.S. sanctions on Iran’s oil exports, but also raises the broader risk level around the Persian Gulf region, still the most important chokepoints for world oil supply.

It does so at a time when crude storage is falling increasingly quickly around the world, tightening the market in the short term. The premium for front-month Brent futures over the subsequent contract rose to $2.80 earlier this week, its highest in over a year.

On Thursday, the International Energy Agency had pointed out that the pace of global stock drawdowns had increase in the fourth quarter – to some 2.24 million barrels a day from 1.56 million in 3Q - despite a resurgence of the Covid-19 virus in key demand centers such as Europe and North America.

Many analysts remain skeptical that the move to the upside can continue, given the ongoing threat to energy demand from new strains of the Covid-19 virus, which are causing numerous governments (such as Germany and the U.K.) to go slow on their reopening plans.

Another risk is that higher prices tempt major producers into abandoning the output restraint that has supported prices so far.  Prices are now well above what the Russian government needs to balance its budget, a situation that typically shifts Russian attention more toward defending its global market share.

However, there are plenty of factors also still supporting prices, not least the drastic cut to global upstream investment, needed to sustain production in the future. According to RBC research global upstream investment fell by nearly by over a third to $141 billion last year and is set to rebound by less than 6% this year.

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Crude Target: $2000/bbl.
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