Market Insiders – Oil prices jumped Monday as markets weighed OPEC production hitting its highest level this year against a war of words between the US and Iran.
West Texas Intermediate rose 1.45% around 12:45 p.m. ET, climbing just above $70 a barrel for the first time in three weeks. Brent, the international benchmark, was up 1.55% to $75.52.
Reuters reported Monday that OPEC countries pumped 32.64 million barrels per day in July, according to a survey conducted by the publication, the highest its been in 2018 and with the Republic of Congo as a new member.
OPEC and other supply-cutting countries led by Russia struck a deal last month to increase production by rolling back coordinated output cuts that had been in place for more than a year. The cartel agreed to reduce compliance with those targets from more than 150% in May to 100%.
Saudi Arabia appears to have played a significant role in the overall supply increase, according to the survey. The country has been positioning itself for record production after months of pressure from President Donald Trump.
Trump has been seeking to pad the oil market after he withdrew the US from the Iran deal, a 2015 pact that lifted sanctions on the country in exchange for restraints on its nuclear weapons program. The State Department last month called on all countries to stop importing Iranian oil by November as part of that move.
Iranian President Hassan Rouhani has threatened to disrupt major regional oil production and exports if the Trump administration follows through with those sanctions.
Saudi Arabia agreed to try to help make up for losses from US sanctions on Iran, the third-largest member of OPEC, but analysts question whether the unofficial OPEC leader could reach the president’s implied production level of 12 million barrels per day.
“It appears the oil market has little confidence that Iran volumes can be easily replaced,” analysts at Bank of America Merill Lynch wrote in a recent note.
Rapidly escalating tensions between Iran and the US last week have stoked existing supply concerns among key producers like Venezuela and Libya. After Rouhani issued a series of veiled threats toward the US last Sunday, Trump warned the leader of dire “consequences” on Twitter.
“A war of words has been heating up between Washington and Tehran as the snapback of US sanctions approaches,” RBC analysts led by Helima Croft wrote in a note. “Worryingly, there are a number of avenues that could metastasize into an unintended escalation.”
Brent is up 41% this year.