03/04/2018 08:07 AST
Oil's rally above $65 a barrel is being propelled by a sign that American explorers have curtailed drilling activity as well as ongoing speculation that the US could reimpose sanctions on Opec producer Iran.
Futures added 0.5 per cent in New York after capping a third straight quarterly gain, the longest winning streak since 2011. US drillers idled seven working rigs last week, easing concerns over surging shale production. Meanwhile, analysts from Mitsubishi UFJ Financial Group Inc. and UBS Group AG said there are upside risks to oil prices from the potential resumption of sanctions on Iran, which would disrupt the nation's crude exports.
Crude rebounded over 5 per cent last month, recouping February's losses, after the US President Donald Trump named hawkish officials to his government, signalling the nation may pursue a more hard-line stance toward Iran. Still, concerns remain that a rapid increase in American production, which has topped 10 million barrels a day each week since early February, could undermine efforts by the Organisation of the Petroleum Exporting Countries (Opec) and its allies, whose output cuts seek to balance the market.
"While American drillers have reduced the number of rigs last week, we have to note that US production still remains high," Kim Kwangrae, a commodities analyst at Samsung Futures Inc., said by phone in Seoul. "Increasing tensions between Iran and the US continue to add a geopolitical risk premium that's giving support to prices at the moment."
West Texas Intermediate crude for May delivery added 30 cents to $65.24 a barrel on the New York Mercantile Exchange at 3:45pm in Seoul. The contract climbed 56 cents to $64.94 on Thursday. No futures were traded in New York or London on Friday due to the Good Friday holiday. Total volume traded was about 44 per cent below the 100-day average.
Brent for June settlement rose 41 cents to $69.75 on the London-based ICE Futures Europe exchange. The May contract climbed 74 cents to close at $70.27 before expiration on Thursday. The global benchmark traded at a $4.59 premium to June WTI.
Yuan-denominated oil futures on the Shanghai International Energy Exchange lost 0.6 per cent to 417.6 yuan a barrel. The September delivery contract closed 2.6 per cent higher on Friday after debuting last week.
US explorers cut the number of rigs by the most since November 2017 last week, bringing the total to 797, Baker Hughes data showed. Still, the count remains near the highest in three years, and with separate data showing nationwide crude inventories climbed 1.64 million barrels in the week ended March 23, jitters over increasing US supplies remain.
Also in the US, Trump's appointment of Iran hawks Mike Pompeo and John Bolton last month increased chances America will exit a deal under which international sanctions were removed on Iran in return of a curbing of its nuclear programme.
If measures are reinstated, at least 250,000 to 350,000 barrels a day of oil is at risk of being disrupted, according to Ehsan Khoman, head of research for the Middle East and North Africa at Mitsubishi UFJ. UBS's analyst Giovanni Staunovo boosted his oil price outlook, citing the potential sanctions as causing an upside risk to prices, especially at a time when Opec and its allies said they will err toward over-tightening in the market.
The encouraging signs for bulls were also echoed in money managers' net-long positions. Hedge funds have increased their bullish WTI bets to the highest level in seven weeks, according to the US. Commodity Futures Trading Commission.
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