WASHINGTON: Oil climbed Tuesday, as Saudi Arabia reiterated a pledge to help balance the global crude market and geopolitical turmoil threatened global inventories, lifting U.S. prices to their highest finish since mid-April. December West Texas Intermediate crude CLZ7, -0.36% rose 57 cents, or 1.1%, to settle at $52.47 a barrel on the New York Mercantile Exchange—the highest finish since April 17, according to FactSet data. Brent oil for December delivery LCOZ7, -0.02% the global benchmark traded on ICE Futures Europe, rose 96 cents, or 1.7%, to $58.33 a barrel. That was the highest settlement since Sept. 26. At a conference Tuesday, Saudi oil minister Khalid al-Falih said Saudi Arabia is willing to “do whatever it takes” to bring global crude inventories back to their five-year average, according to Reuters. “This time the market, unlike the last time, believes them as OPEC and their compliance has earned some market cred,” said Phil Flynn, senior market analyst at Price Futures Group. “Oil prices which were floundering lower overnight reversed course and surged higher” after al-Falih’s comments, he said. Al-Falih also suggested that more needs to be done, which is “signaling that it is very likely” that the Organization of the Petroleum Exporting Countries and other producers that are part of the agreement to curb crude output will agree to extend the current production cuts, said Flynn. The output-cut agreement is set to expire at the end of the first quarter of 2018. Al-Falih also noted the shale-oil slowdown pointing out that shale-oil production has risen only slightly, Flynn said. “This is a strong statement as many feared was that shale-oil production would offset OPEC and non-OPEC cuts. The reality of shale economics and falling production per well has proven that at least right now, the shale-oil producers were not up to the task, he said.
Crude prices have risen over the past couple of weeks following an independence referendum in Iraq’s northern, semiautonomous Kurdish region. The move has led to clashes with Iraqi forces retaking the oil-rich Kirkuk area, throwing into question Kurdistan’s ability to export oil through Turkey and raising doubts about investments from big oil companies. John Macaluso, an analyst at Tyche Capital Advisors, said he believes that a $1 to $2 a barrel geopolitical “risk premium seems currently priced in.” At the same time, President Donald Trump’s decision not to recertify Iran’s compliance with a 2015 international agreement to curb the Islamic Republic’s nuclear program also supported oil prices. Trump’s decision raised the prospect of fresh sanctions on Iran, which would likely disrupt its oil exports and reduce global supply. “With enough geopolitical risks on the horizon, prices can find a degree of ongoing support,” according to Martijn Rats, an analyst at Morgan Stanley. “With several ‘hot spots’ around the world, and markets tighter than they used to be, this could become an ongoing feature of the market once again,” he wrote. But even with the newfound geopolitical risk premium, U.S. crude exports have ramped up as the Gulf Coast oil infrastructure has come back online following the storm season. Back on Nymex, energy products finished higher along with oil. Gasoline for November delivery RBX7, +0.41% rose 2.2% to $1.716 a gallon, while November heating oil HOX7, +0.26% rose 1.9% to $1.822 a gallon. November natural gas NGX17, -0.67% fell 0.6% to $2.974 per million British thermal units. Weekly data on U.S. petroleum supplies will be released by the American Petroleum Institute late Tuesday and the Energy Information Administration early Wednesday. Analysts surveyed by S&P Global Platts forecast a decline of 425,000 barrels in crude stockpiles, along with supply declines of 2.3 million barrels for gasoline and nearly 2.1 million for distillates.
