Oil jumps 2 % as market tightens, more gains seen

Saudi leaders face pressure from the United States to raise crude oil production

Benchmark Brent crude hit its highest since November 2014 at $80.94 per barrel, up $2.14 or 2.7 per cent, before easing to around $80.65 by 1335GMT.

Iranian oil exports have been in jeopardy since Washington announced re-imposing unilateral sanctions against the Islamic Republic after US President Donald Trump in May pulled out of the 2015 nuclear deal between Tehran and a broad alliance of world powers.

The message from Saudi Arabia, the biggest producer in the Organization of the Petroleum Exporting Countries (OPEC), and its ally Russian Federation is that there is no need for extra crude in the market. The U.S. Energy Information Administration (EIA) expects domestic crude oil production will increase over the next five years and then flatten after 2022, staying at about 11 million to 12 million barrels per day through 2050.

Commodity traders Trafigura and Mercuria said today that Brent could rise to $90 per barrel by Christmas and pass $100 in early 2019, as markets tighten once USA sanctions against Iran are fully implemented from November. This deal was upheld at Sunday's meeting.

"I do not influence prices", Saudi Energy Minister Khalid al-Falih told reporters in Algiers ahead of a meeting of OPEC and non-OPEC energy ministers.

The Oman forward curve has seen backwardation steepen in the past month, with the front-month contract now at a premium of $2.95 to the six-month future, up from $1.88 a month ago.

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Furthermore, the commodity has also rallied in the wake of United States sanctions on Iranian oil exports and fears about OPEC-member depletion rates. "The reason Saudi Arabia didn't increase more is because all of our customers are receiving all of the barrels they want".

Commodity traders Trafigura and Mercuria said they expected Brent crude to climb above $90 by Christmas and to pass $100 early in 2019.

OPEC isn't the only organization that believes there is only so much USA oil production can increase.

The lack of OPEC's immediate action could mean higher prices.

"First, crude oil prices are rising against a strong dollar backdrop". That was the highest level since November 12, 2014.

"Balances are precarious and the lack of spare capacity could see crude pricing well above US$90 or even US$100, should all of the potential risk in the market materialize", analysts including Ed Morse said in the note.

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