By Barani Krishnan
Investing.com – Never mind that nearly six million barrels of crude piled up in U.S. storage last week, or that the International Energy Agency still thinks there’s an oversupply despite six months of OPEC cuts.
The Saudis are accusing the Iranians of being the unseen hands in this week’s sabotage of the kingdom’s oil industry, and that’s all that seemed to be needed to give crude a third-straight day of gains.
, the benchmark for U.S. crude, were up 99 cents, or 1.6%, at $63.01 per barrel by 1:00 PM ET (17:00 GMT).
, the global benchmark for oil, rose by $1.17, or 1.6%, to $72.94.
With Thursday’s run-up, WTI is headed for a 2% gain on the week. But as of Thursday, it was down 1.5% for the month, accounting for losses since the start of May. Year to date, the U.S. crude benchmark shows a 39% gain.
Brent has risen as much as 4% on the week before gains were trimmed. Month to date, it has gained almost 2%, while for the year it is up around 36%.
Thursday’s price surge came after Saudi Arabia accused Iran of ordering this week’s attack by Yemeni rebels on a key oil pipeline, stoking concerns that the world’s largest oil-producing region is edging toward another war. Earlier on Sunday, the Saudis said two of their oil tankers were damaged in attacks carried out on the vessels while they were on the Persian Gulf.
Iran, under U.S. sanctions that prevent its oil from being sold anywhere in the world, has warned the other oil producers in the Middle East as well as the United States in recent weeks of “consequences” for their actions, prompting Washington to move a warship and bombers to the region.
Saudi Prince Khalid Bin Salman, the vice minister for defense and brother of the kingdom’s de facto ruler Mohammed bin Salman, said on Twitter that Tuesday’s drone attack, claimed by Iran-backed Houthis, had undermined political efforts to ease tensions in Yemen.
Geopolitical tensions in the Persian Gulf can often cause oil prices to rise very quickly as they raise fears about the security of crude supplies coming out of the region, which supplies about half of the world’s oil needs.
While oil bulls cheered Thursday’s rally, other market participants questioned the legitimacy of Saudi Arabia’s charges against Iran. The kingdom has so far not produced any independently-verifiable proof of Tehran’s culpability in the sabotage of its oil facilities, although the Houthi rebels, who are known supporters of Tehran, claimed responsibility for the pipeline attack.
Arab News, in an editorial, called for Iran to be punished, saying “it should not get away with any more intimidation, or be allowed to threaten global stability”.
The Saudi attempts to link Iran to the attacks, an outcome the oil market had anticipated all week, comes before a preliminary OPEC meeting on Sunday where the cartel will discuss supply-demand and whether to recommend further production cuts at its more important June 25 meeting. Despite their enmity, the Saudis and Iranians are both key members of OPEC, along with Venezuela, which is also under U.S. sanctions.
“The next OPEC meeting is anyway going to be very complicated as we don’t see how Iran and Venezuela will vote in favor of a supply increase by Saudi Arabia and the UAE in order to replace their restricted exports due to U.S. sanctions,” said Olivier Jakob, founder of PetroMatrix, a Zug, Switzerland-based oil consultancy.
Then, there is the question also how well-balanced oil supplies are now.
rose by 5.4 million barrels last week, the U.S. government announced on Wednesday, surprising a market expecting a decline instead of 800,000 barrels. In the previous week, crude inventories fell by almost 4 million barrels.
The Paris-based IEA said due to weakened demand, the global oil market was in a surplus of about 700,000 barrels in the first quarter despite WTI and Brent gaining about 30% in prices.
Combined with the worsening U.S.-China trade war and its impact on the global economy, the oil market is sending “mixed signals,” the IEA said.
“Weaker demand combined with supply outages and slowing but still significant production growth – it paints a confusing picture in which the market is tightening, but not overly so,” said Nick Cunningham, commentator at Oilprice.com, which covers energy news.