Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
[Myra P. Saefong & Mark DeCambre, MarketWatch]
Saudi Arabia reportedly asks nationals to leave Lebanon immediately.
Oil prices climbed back toward two-year highs on Thursday, as a report that Saudi Arabia has urged its nationals to leave Lebanon immediately implied worsening tensions in the Middle East, increasing the risk to global crude supplies.
On the New York Mercantile Exchange, West Texas Intermediate oil for December CLZ7, -0.03% rose 36 cents, or 0.6%, to settle at $57.17 a barrel—not far from Monday’s finish of $57.35, which was the highest since the summer of 2015.
Brent crude for January delivery LCOF8, +0.09% the global oil benchmark, rose 44 cents, or 0.7%, to $63.93, also close to the $64.27 Monday settlement, its highest level since June 2015.
Oil prices touched fresh session highs on Thursday following a report from Al Arabiya that Saudi Arabia has urged its nationals to leave Lebanon immediately. The report said Kuwait, the United Arab Emirates and Bahrain have also issued travel warnings to their respective citizens.
The report “raised fears that the Saudi Arabia may be considering more military action in the region,” said Phil Flynn, senior market analyst at Price Futures Group.
Oil prices have climbed nearly 3% in theweek to date, partly due to a corruption crackdown in major producer Saudi Arabia, where Crown Prince Mohammed bin Salman had dozens of princes, ministers and prominent businessmen detained. Rumors on Thursday were that King Salman would abdicate in favor of the crown prince in a few days.
The potential transfer of power and the Saudi’s conflicts with Middle East neighbors, including Iran and Iraq, has added to supply concerns, which have helped drive up prices.
Adrienne Murphy, chief market analyst at AvaTrade said she believes “the reality is that Saudi Arabia is losing its grip on the oil market.”
“A scandal like this purge would have been more impactful a few years ago, but the looming shale industry and advances in technology have weakened the kingdom’s hand,” she said.
Ashray Ohri, an economist at ICICI Bank, in a note Thursday, said “markets seem to be reading too much into the geopolitical risk premium and we see the current level to be a temporary surge, largely expected to come back down closer to where the fundamentals suggest”—at around $60 a barrel for Brent.
“A downside to current prices is the rising U.S. production, nearing record levels at 9.5 million [barrels per day], while exports have crossed the 2 million bpd mark, which could be the trigger for a sharp correction ahead as geopolitical risks subside,” said Ohri.
Total U.S. crude production rose last week to 9.62 million barrels a day—the highest weekly output level since at least June 2015, according to data from the Energy Information Administration Wednesday. The EIA Wednesday also reported a surprise weekly rise in crude inventories, along with bigger-than-expected supply declines for gasoline and distillates.
On Thursday, December gasoline RBZ7, +0.08% fell less than 0.1% to $1.82 a gallon and December heating oil HOZ7, +0.18% advanced 2.5 cents, or 1.3%, to $1.947 a gallon.
December natural gas NGZ17, -0.13% tacked on 2.5 cents, or 0.8% to $3.20 per million British thermal units, after an EIA report Thursday morning showed thatdomestic supplies of natural gas rose by 15 billion cubic feet for the week ended Nov. 3, compared with expectations for a rise of 12 billion cubic feet.
Investors are awaiting a meeting between the Organization of the Petroleum Exporting Countries and other major producers on Nov. 30, where an extension to the deal to cut production until March 2018 is expected to be discussed.
Output from OPEC members in October edged lower by 90,000 barrels a day from a month earlier to 32.57 million barrels a day, according to a survey released Wednesday of OPEC and oil-industry analysts conducted by S&P Global Platts.
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