Oil rises on flaring geopolitical risks and shrinking stockpiles

Flaring geopolitical tensions in the Middle East coupled with expectations for a decline in U.S. stockpiles are boosting oil to trade near $70 a barrel.


Futures in New York climbed as much as 1 percent, set for the highest close since November 2014. A measure of oil volatility rose the most in two weeks as the conflict between Saudi Arabia and Iran-backed Houthis in Yemen worsened, raising concerns over supply disruptions in the energy-rich Mideast region. Expectations for a drop in U.S. crude inventories added to the gains, with analysts forecasting a second weekly decline.

Oil has rallied this month as the Organization of Petroleum Exporting Countries and its allies concluded that they have all but wiped out a global crude surplus, and Iran signaled the group can end cuts if prices rise more. Still, with production in the U.S. continuing to reach record levels, investors are wary that expanding output from shale producers could thwart OPEC’s efforts to reduce a global glut.

“The market is buying the bullish news at the moment,” Will Yun, a commodities analyst at Hyundai Futures Corp., said by phone. “But the volatility is high, meaning the direction of the market can change at any time.” West Texas Intermediate crude for June delivery rose as much as 69 cents to $69.33 a barrel on the New York Mercantile Exchange, and traded at $69.22 at 2:52 p.m. in Singapore. Total volume traded was about 4 percent above the 100-day average.

Brent crude for June delivery added 48 cents, or 0.6 percent, to $75.19 a barrel on the London-based ICE Futures Europe exchange after climbing 0.9 percent on Monday. The global benchmark crude traded at a $5.96 premium to June WTI after closing at $6.07 on Monday, the highest premium in more than three months.

Volatility Surges

Futures for September delivery traded 1.9 percent higher at 448.2 yuan a barrel on the Shanghai International Energy Exchange. The contract closed 0.7 percent up at 439.7 yuan on Monday. The Cboe/Nymex oil volatility index jumped 3.9 percent on Monday, posting its biggest gain since April 10. Saudi Arabia intercepted ballistic missiles fired by Iran-backed Houthis in Yemen, while a kingdom-led coalition killed a senior leader of the rebel group.

For U.S. crude stockpiles, a Bloomberg survey showed that analysts expect nationwide inventories to have fallen 2.25 million barrels last week ahead of government data release on Wednesday. Stockpiles in the nation’s oil storage hub Cushing, Oklahoma, are likely to have fallen 150,000 barrels in the same period, a separate survey showed.

As well as Mideast tensions and U.S. stockpiles, America’s recent softening stance against China and Russia is also boosting sentiment among oil investors, Hyundai Futures’ Yun said. Treasury Secretary Steven Mnuchin is considering lifting sanctions against Russian metal giant United Co. Rusal.

Other oil-market news:

  • The Bloomberg Dollar Spot Index was little changed after rising to highest in more than three months on Monday.
  • China’s crude imports from Russia increased 24 percent year-on-year in March, while purchases of Saudi Arabian crude rose 1.2 percent during the same period, according to data released by the nation’s General Administration of Customs on Tuesday.
  • Saudi Aramco, the world’s biggest oil exporter, plans to trade as much as 6 million barrels a day, a jump in volume that would put it in the top tier of companies that buy and sell crude and refined products.
  • Exxon Mobil Corp., which has been a cornerstone of fund managers’ portfolios alongside the biggest names in corporate America, has fallen to ninth-largest company on the S&P 500 Index after leading the measure a decade ago.

Sources and photo-credits: Bloomberg with assistance by Tsuyoshi Inajima