Oil holds near five-month high

9th April 2019 By: Bloomberg

Oil in New York held near the highest level since late October as an escalation of geopolitical tensions in Libya and Iran fanned concerns over supplies.

West Texas Intermediate futures were little changed, after gaining 3.7% over the previous two sessions. Libya’s eastern-based warlord Khalifa Haftar struck the only functioning international airport in the capital, Tripoli, on Monday, sowing fears that his military campaign could tip the nation into chaos. Fellow OPEC nation Iran, already reeling from US sanctions, had an elite wing of its military designated as a terrorist organization by the Trump administration.

“It has been blatantly obvious why oil prices have been climbing higher and reaching new five-month highs in recent days -- it is the rise in geopolitical price premium,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. in London.

Oil prices had their strongest quarter in almost a decade as the Organization of Petroleum Exporting Countries curbed supply, and the latest flash-points in the Middle East and Venezuela gave the rally renewed impetus. The prospect of some sort of resolution to the US-China trade war and slivers of optimism over the global economy have also buoyed the demand outlook in recent days.

WTI for May delivery slipped 14 cents to $64.26 a barrel on the New York Mercantile Exchange as of 8:26 a.m. local time. It advanced 2.1% on Monday to settle at $64.40, the highest close since Oct. 31. The grade’s 14-day relative strength index was at 77, above the 70 level that signals it’s in overbought territory.

Brent for June settlement fell 22 cents to $70.88 a barrel on the London-based ICE Futures Europe exchange, after gaining 1.1% on Monday. The global benchmark crude was at a premium of $6.63 to WTI for the same month.

While the latest fighting in Libya has been far from key oil installations, the potential for disruption was enough to rattle markets. Previous bouts of violence have had a serious impact on the country’s ability to ship crude. Tripoli’s nearest oil port is Zawiya, which is fed by the nation’s largest oil field, Sharara.

The White House’s move to designate the Islamic Revolutionary Guard Corps a “foreign terrorist organization,” which takes effect April 15, is aimed at further scaring away any foreign company or government that does business with Iran. The move comes as some buyers of Iranian oil, including China and India, are waiting to see if their sanctions waivers will be extended beyond May.

“Iran and Venezuela sanctions, Libya, Saudi Arabian production cuts: the list goes on of supportive geopolitical factors overriding the grossly overbought technical picture,” said Jeffrey Halley, a senior market strategist at Oanda Asia Pacific Ltd. in Singapore. “Throw in optimism on global growth, real or imagined, and picking a high in black gold is a fruitless task for now.”

The structure of the futures market is also showing signs of tightening. WTI’s three-month spread closed at a premium of 34 cents on Monday, flipping to backwardation where the spot price is higher than the forward price, from contango.