Oil prices jumped nearly 3% on Wednesday as plunging US crude stockpiles compounded supply concerns due to uncertainty over Libyan exports, a production disruption in Canada, and US demands that importers stop buying Iranian crude from November.
US crude stocks fell by nearly 10-million barrels last week, the most since September 2016, while petrol and distillate inventories rose less than expected, the Energy Information Administration (EIA) said.
US crude futures rose $1.74 to $72.27 a barrel by 2.43pm GMT, after hitting a session high of $72.61 a barrel. Brent crude rose $1.51 to $77.82 a barrel. The spread between the two narrowed as the EIA said US crude exports soared to a record 3-million barrels per day (bpd).
Crude stocks at the Cushing, Oklahoma, delivery hub for the NYMEX futures contract fell by 2.7 million barrels, the EIA said. “Cushing is a whopper,” said Bob Yawger, director of energy futures at Mizuho, referring to the drawdown.
The report reflects only one single day of a Syncrude production disruption in Canada, where output feeds into pipelines that go to Cushing. Production at Syncrude’s oil sands facility will be offline at least until and throughout July, after a power outage last week locked in 350,000 bpd.
“Next week, you’re going to have a Cushing storage number that includes seven days of the Syncude outage. The math there would imply that you’d get an even bigger draw than this week,” Yawger said. The fall in Canadian exports has helped drain supplies of heavy crude across North America and contributed to a major draw in US crude oil inventories, analysts said.
Also keeping markets on edge was the risk of a disruption to supplies from Africa and the Middle East. In Libya, a power struggle between the internationally recognised government and rebels has left it unclear who will handle the country’s oil exports.
The future of Iranian crude exports is also unclear. The US has told all countries to stop importing Iranian oil from November, as the Trump administration ramps up pressure on the Islamic Republic.
Trying to make up for disrupted supply, oil cartel Opec said last week that it would increase output. Saudi Arabia plans to pump a record 11-million bpd in July, up from 10.8-million bpd in June, an industry source familiar with Saudi plans told Reuters on Tuesday.
Despite widespread international opposition to the US stance on Iran, analysts expect a significant reduction in exports from Opec’s third biggest producer, perhaps in excess of 1-million bpd. Iran pumped 3.8-million bpd in May, Reuters’ monthly survey showed.
Goldman Sachs said the planned unilateral US sanctions against Iran would likely have a “high level of efficiency”. Risk consultancy Eurasia Group said it was “very unlikely” the US would succeed in ending Iranian oil sales as fast as it hoped, but added, “We are increasing our estimate of oil likely to come off the market by November to about 700,000 bpd — another bullish factor for prices.”