SINGAPORE: Brent crude oil traded above $125 on Monday as tension over Iran’s nuclear programme supported prices, offsetting an increase in oil exports from Libya and a rise in production by Saudi Arabia.
The threat of military action against Iran, the world’s fifth largest oil exporter, has unnerved energy markets and sent oil prices soaring, with Brent nearly 17% higher since the start of the year.
Iran has agreed to a new round of talks with the international community about its nuclear programme, which it describes as peaceful, but Western sanctions against Tehran have impacted oil exports and there are fears a military strike would severely restrict supply, analysts say.
With the oil price above $125 and potentially stalling global economic growth, Organization of the Petroleum Exporting Countries (Opec) kingpin Saudi Arabia has boosted production and the US government has considered plans to release oil reserves to ease supply fears.
The supply picture was also boosted by news that Libya’s oil exports will exceed pre-war levels in April, climbing to almost 1.4 million barrels per day, a senior official at the National Oil Corp. (NOC) said.
“Iran as a supply risk is supporting prices and weaker demand, rising production and physical oversupply is weighing on prices, so it is keeping prices rather stable in this narrow range,” said Carsten Fritsch, a commodity analyst at Commerzbank.
Brent crude was trading at $125.51 a barrel by 2.29pm GMT, down 30 cents after settling up more than $3 in the previous session.US crude rose 67 cents to $107.73, after climbing nearly $2 on Friday.
Oil prices were also supported by a brighter outlook for the US economy and signs of stability in the euro zone, which also helped push Asian stocks higher on Monday.
The global economy has stepped back from the brink of danger, but high debt levels in developed markets and rising oil prices are key risks, International Monetary Fund managing director Christine Lagarde said on Sunday. However, barring a supply shock, the upside for oil is limited, analysts at US investment bank Morgan Stanley said. “Risks are skewed to the downside, particularly if outages resolve, SPRs (strategic petroleum reserves) are released, or geopolitical tensions recede,” they said in a report.
Saudi Arabian oil exports rose 143,000 barrels per day in January, according to government data published on Sunday, as the world’s leading crude seller increased supplies to the US.
Iraq has also set up a contingency plan to expand its oil export routes to deal with any potential crisis should Iran close the Strait of Hormuz that is used for a third of the world’s seaborne oil trade, a government spokesman said.
US economic data last week added to a recent spate of good news about the pace of recovery and put a floor under oil prices.
Market participants will now be looking at preliminary Chinese manufacturing data for March due later this week for an indication of energy demand in the world’s No.2 oil consumer.