Looming sanctions on Iran coupled with reports of tightening US fuel inventories continue to drive oil prices higher, with Brent crude futures trading over $78.10 per barrel on Wednesday.
The US sanctions on Iranian oil and transactions with the central bank of Iran are about to come into effect on November 6, threatening to cut supplies to an already tight market.
US President Donald Trump has tried to soothe the market by saying that the Saudi king had agreed to increase oil production by up to 2 million barrels per day (bpd) to moderate high prices.
The kingdom is under the US pressure to ramp up oil production quickly to make up for loss of Iranian barrels which the Trump administration has threatened to bring down to zero.
Trump wants to make sure that higher gasoline prices as a result of his Iran decision would not hurt Republicans at the upcoming polls.
Trump has sought to blame surging oil prices on OPEC, but it was his decision to leave the 2015 landmark nuclear deal with Iran and reimpose sanctions on the country that has caused oil prices to rise to record highs since late 2014.
On Wednesday, US West Texas Intermediate (WTI) crude futures rose 46 cents, or 0.6%, to $74.60 a barrel compared with their last settlement, Reuters reported. On Tuesday, WTI hit its highest since November 2014 at $75.27.
Brent crude futures were changing hands at $78.10 per barrel, up 34 cents, or 0.4%, from their last close, the news agency said.
The rise came as the American Petroleum Institute (API) said US crude inventories had fallen by 4.5 million barrels to 416.9 million barrels in the week to June 29.
The US government has demanded that all countries stop buying Iran’s oil from November. China, however, made it clear that it has no plans to submit to the demand.
China is Iran’s biggest oil client, which imported more than 700,000 bpd from OPEC’s third producer in April.
“China is always opposed to unilateral sanctions and long-arm jurisdiction,” Foreign Ministry spokesman Lu Kang told reporters when asked if China would cooperate with the US.
Lu called China and Iran “friendly countries,” saying they “maintain normal exchanges and cooperation within the framework conforming to our respective obligations under the international law.”
“This is beyond reproach,” he said.
A senior Iranian oil official plays down differences with Russia over a Saudi push to raise oil production, while President Rouhani says the US threat to cut Iran’s output to zero is an “exaggeration.”
Meanwhile, oil market experts have dismissed an abrupt increase in the Saudi oil production.
“You cannot order 2 million barrels like ordering a coffee somewhere,” CNBC quoted Beat Wittmann, a partner at financial consultancy Porta Advisors, as saying Monday.
With Trump’s brinksmanship on the rise, PVM Oil Associates strategist Tamas Varga said, “We are entering the second half of the year with a huge amount of uncertainty surrounding the supply side of the equation.”
“Depending on your belief you could just as easily bet on $100 as $60 by the end of the year,” he said in a research note published Monday.