SINGAPORE/TOKYO: Oil prices rose on Monday on concerns that Iran’s seizure of a British tanker last week may lead to supply disruptions in the Middle East Gulf, although gains were capped as Libya resumed output at its largest oil field.
Brent crude futures climbed 88 cents, or 1.4%, to $63.35 a barrel by 0706 GMT. West Texas Intermediate (WTI) crude futures were up 58 cents, or 1%, at $56.21 a barrel. WTI fell over 7% and Brent fell more than 6% last week. Falling global demand and rising US stockpiles have helped turn oil charts very bearish, but that may not last as tensions remain high in the Gulf, Edward Moya, senior market analyst at OANDA in New York, said in a note.
Iran’s Revolutionary Guards said on Friday they had captured a British-flagged oil tanker in the Gulf in response to Britain’s seizure of an Iranian tanker earlier this month. The move has increased the fear of potential supply disruptions in the Strait of Hormuz at the mouth of Gulf, through which flows about one-fifth of the world’s oil supplies. Britain was weighing its next moves on Sunday, with few good options apparent as a recording emerged showing that the Iranian military defied a British warship when it boarded and seized the ship.
Meanwhile, a senior United States administration official said on Friday the U.S. will destroy any Iranian drones that fly too close to its ships, a day after the U.S. said one of its navy ships had destroyed an Iranian drone in the Strait of Hormuz. Iran said it had no information about losing a drone. Crude oil supply outages and curbs also helped lift prices higher. Oil prices got a small boost this morning after Libya’s (NOC) declared force majeure on Sharara crude loaded at Zawiya port, said Stephen Innes, managing partner at Vanguard Markets.
The Sharara oilfield resumed production at half capacity on Monday after being shut down since Friday, which caused an output loss of about 290,000 barrels per day (bpd). Meanwhile, data late last week showed shipments of crude oil from Saudi Arabia, the world’s top oil exporter, fell to a 1-1/2 year low in May.
Oil exporters including GCC countries are expected to see slower growth prospects, according to the Economic Insight: Middle East Q2 2019 report, produced in partnership by ICAEW and Oxford Economics.
According to the report, oil producers in the Middle East will also see limited growth in the oil sector, the traditional engine of economic growth and a primary source of government revenues, given the anticipated extension of the output cuts by Opec+ to balance the international oil markets. Oil prices are forecast to average around $67 (Dh246) per barrel (p/b) in 2019, down by some 5.6 per cent from the average of $71p/b last year.
In 2019, the non-oil sector will continue to be supported by various pro-growth government initiatives, expansionary budgets and fiscal stimulus plans, especially in Saudi Arabia and the UAE, the two largest GCC economies.
“Continued uncertainty in the global oil market means increasing non-oil revenues is vital for regional economies. Governments in the region have been proactive, but they must continue to support their economies with pro-growth initiatives,” said Michael Armstrong, ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA).