Saudi Arabia 'Pumps' Oil Prices Higher

WTI Crude Oil

U.S. West Texas Intermediate crude futures ended Wednesday's session up $1.95 a barrel, or 2.9%, at $68.47/Bbl, the best settlement since December 1, 2014, Kallanish Energy reports.

Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation fell up to 7 percent intraday after crude oil prices rallied more than 3 percent on decline in USA crude inventories.

The oil market has been supported by concerns about geopolitical tension and supply disruptions in crude-producing nations.

But the latest leg up over the past two weeks has largely reflected rising political risk, traders say. Brent, the global benchmark, was trading at $74.14 at 8:51 a.m. ET.

"Geopolitics have a much bigger impact when the market is already tightening", said Amrita Sen at Energy Aspects in London. “It's a multitude of factors that are contributing to that tighter inventory picture.

"Overall the supply-demand equation is fairly balanced", said Anthony Scott, managing director at BTU Analytics in Denver.

The cuts have been even bigger than those specified in the deal, thanks in part to a slide in Venezuelan production due to an economic crisis in the South American country.

The market is also waiting to see whether President Donald Trump will reimpose sanctions on Iran as a May 12 deadline approaches.

Today, a leaked OPEC/NOPEC report suggested that the lingering overhang was even smaller-at 12 million barrels above the five-year average.

"The current move up is nearly exclusively aided by geopolitical events", said Tamas Varga at oil brokerage PVM in London. Saudi Arabia's comments were seen as an intent to continue limiting oil production, although oil stores are now close to the 5-year average.

Talk that Saudi Arabia has its sights on $80-$100 a barrel oil again ignited a fierce rally in commodities and resource stocks on Thursday, though the potential boost to inflation globally put some pressure on fixed-income assets. In any case, there is no sign yet that Saudi Arabia or its partners need the supply slice to end.

The biggest threat to the rally, beyond an easing in tension in the Middle East, remains the USA shale sector.

Oil prices on Thursday hit highs not seen since 2014, built on the ongoing drawdowns in global supply and as Saudi Arabia looks to push prices higher, though USA crude gave back gains in the afternoon to finish lower.

Prices in the Permian basin, the largest United States shale field in west Texas, have fallen to a discount to the benchmark, however, as soaring output growth is pushing up against infrastructure constraints to get the oil easily to market.

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