Yemisi Izuora
Oil prices rose further on Wednesday, supported by tensions in the Middle East and healthy global demand, although rising output from the United States continued to weigh on markets.
The U.S. West Texas Intermediate (WTI) crude futures were at $63.82 a barrel up 28 cents, or 0.4 percent, from their previous close, while Brent crude futures were at $67.66 per barrel, up 24 cents, or 0.4 percent.
Saudi Arabia’s Crown Prince Mohammed bin Salman arrived in to Washington for a state visit, raising market speculation the United States could reimpose sanctions on Iran, following rewnewed criticism of the 2015 nuclear deal.
“The presence of the Saudi Crown Prince MBS in Washington and his clear agenda to ramp up pressure on Iran, has for me, been the key driver of oil, which rose strongly,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.
Energy consultancy FGE said it was likely that the United States would reimpose sanctions on Iran soon, resulting in a 250,000 to 500,000 barrels per day (bpd) drop in its exports by year-end.
Analysts also pointed to healthy economic growth and a weak dollar as oil price drivers.
In a sign of healthy demand, U.S. crude stocks fell by 2.7 million barrels in the week ended March 16 to 425.3 million, as refineries boosted output, the American Petroleum Institute said on Tuesday.
“The global economy is humming, and robust demand solidly underpins commodity prices. The soft dollar and a bullish market mood have been equally supportive elements,” said Norbert Ruecker, head of macro and commodity Research at Swiss bank Julius Baer.
A weaker greenback makes imports of dollar-denominated crude cheaper for countries using other currencies at home, potentially spurring demand.
Despite this, he said seasonally low demand at the end of the northern hemisphere winter season meant he had “a rather cautious near-term outlook on commodities.”
Looming over oil markets has been surging U.S. crude oil production , which has risen by more than a fifth since mid-2016, to 10.38 million barrels per day (bpd), pushing it past top exporter Saudi Arabia and within reach of Russia’s 11 million bpd.
Meanwhile, analysts say U.S. producers are not yet at their limits.
Some say U.S. producers are holding back expansion in order to prevent another price crash, as seen between 2014 and 2016.
“The larger players are holding back capital expenditures in an attempt to avoid past mistakes. Despite a substantial growth in the U.S. production, there is no effort to produce to the max with no regard to the market,” said energy consultancy FGE in a note.