Crude Surges to $80 as Investors Cut Bullish Bets on Shrinking Surpluses

Brent trading at largest premium to U.S. benchmark since 2015

Discount on American oil is encouraging record crude exports

(Bloomberg) Oil rallied to $80 a barrel in London for the first time since late 2014 amid mounting signs that global stockpiles are shrinking.

Brent crude futures climbed as much as 1.5 percent on Thursday as OPEC’s output curbs tightened surpluses around the world and the outlook for shipments from Venezuela and Iran worsened. The rally in New York fizzled, however, as record output from shale fields and a drilling ramp-up limited the scope for gains. The widening gap between the global benchmark and American prices encouraged unprecedented exports of U.S. oil.

The worldwide glut has been eradicated and “OPEC still hasn’t said anything about ending the deal early, which is only good for markets,” said Ashley Petersen, lead oil analyst at Stratas Advisors in New York. As for the U.S., “we’ve been having plenty of exports to kind of alleviate any sort of glut here. There seems to be just enough crude and it’s all finding a home to go to.”

Oil this month has touched levels last seen more than three years ago after the U.S. pulled out of the Iran nuclear accord, conflicts in the Middle East intensified and Venezuela’s decline as a major supplier was heightened by ConocoPhillips freezing the country’s exports. Saudi Arabia Energy Minister Khalid Al-Falih and United Arab Emirates Energy Minister Suhail Al Mazrouei expressed concern over the oil market volatility, saying recent moves in oil prices have been driven by geopolitics.

Yet, money managers who are reducing bullish bets on oil are following a “dangerous” strategy, according to Goldman Sachs Group Inc. Demand will remain strong and concerns over economic growth will probably prove temporary, Goldman’s analysts said.

Brent for July settlement added 2 cents to settle at $79.30 a barrel on the London-based ICE Futures Europe exchange, after earlier reaching $80.50, the highest intraday level since November 2014. The global benchmark crude traded at a $7.73 premium to West Texas Intermediate for delivery the same month, the biggest front-month spread since 2015.

West Texas Intermediate for June delivery settled unchanged at $71.49 a barrel on the New York Mercantile Exchange. Total volume traded was 22 percent above the 100-day average.

“When you think about it, with the pipeline bottlenecks happening in the U.S., these barrels have to be priced to sell and you have to keep that export window open,” said Michael Tran, a commodities strategist with RBC Capital Markets in New York. “The bottom line here is this WTI-Brent spread will ultimately remain relatively wide over the course of the summer.”

$100 Oil

The S&P 500 Energy Index rose as much as 1.4 percent led by Marathon Petroleum Corp., Andeavor and Valero Energy Corp.

Total SA Chief Executive Officer Patrick Pouyanne said he wouldn’t be surprised to see $100 oil in coming months with the Iran announcement pushing prices higher, yet also said the oil market is not fully back in balance.

Meanwhile, French President Emmanuel Macron said that France and the European Union have no intention of imposing sanctions or counter-sanctions on U.S. companies over the U.S.’s re-imposition of sanctions on Iran.

Oil-market news:

The Energy Information Administration reported on Wednesday that U.S. crude stockpiles declined for a second week, while crude exports jumped by 689,000 barrels a day last week.
Gasoline futures slipped 0.3 percent to settle at $2.2431 a gallon.
U.S. April petroleum demand was the strongest for the month since 2007, the American Petroleum Institute said in its monthly report.
Royal Dutch Shell Plc declared curbs on the flow of Nigeria’s Bonny Light crude, disrupting post-conflict recovery in the West African country’s oil industry.
— With assistance by Tsuyoshi Inajima, Grant Smith, and Heesu Lee