Oil-related exchange traded funds maintained their momentum Monday, with Brent crude oil prices breaking above $80 per barrel and on pace for its highest close in four years.
On Monday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, advanced 1.8% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, increased 2.5%.
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Meanwhile, WTI crude oil futures were 1.8% higher to $72.0 per barrel and Brent crude was up 2.7% to $80.9 per barrel.
Crude oil prices strengthened Monday, with global prices heading toward their highest close in almost four years, after the Organization of Petroleum Exporting Countries left production steady over the weekend and rising speculation that U.S. sanctions against Iran and outages in Venezuela will lead to supply shortages, the Wall Street Journal reports.
“The supply issues are real,” Chris Kettenmann, chief energy strategist at Macro Risk Advisors, told the WSJ. “The U.S.-Iran economic sanctions are only compounding the fact that buyers need to look elsewhere for delivery of barrels.”
The sudden spike in oil is a stark reversal from the recent months of weakness as President Donald Trump pressured the oil cartel to raise output to combat rising prices and market observers showed concern over a possible slowdown in demand on global weakness.
Iran Could Leave a Huge Hole in Supply
Analysts argued that uncertainty among OPEC members over how to react to sanctions banning Iranian oil sales that will take effect in November fueled the supply concerns hitting the market. The sanctions could open a 500,000 barrel-per-day gap in supply out of Iran.
“The market was watching for Saudi Arabia to be a little bit more proactive, and there’s been no sign of that,” Olivier Jakob, managing director of consultancy Petromatrix, adding that OPEC doesn’t have much spare capacity to play with, told the WSJ.
Meanwhile, a crisis in Venezuela and supply risks from other producers like Libya have also contributed to the overall diminished output outlook.
Additionally, some market watchers expect a bottleneck in the U.S. that could prevent large domestic producers from raising supply. Traders also increased bets that a wide gap between U.S. WTI and global Brent prices trigger increased U.S. oil exports.
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