Oil prices were firm on Tuesday, supported by concerns that tensions in West Asia could lead to supply disruptions, although further rises expected in US crude output loomed over markets.
US West Texas Intermediate (WTI) crude futures were at $65.63 a barrel at 0700 GMT, up 8 cents, or 0.1 per cent, from their previous settlement. Brent crude futures were at $70.17 per barrel, up 5 cents, or 0.1 per cent.
James Mick, Managing Director and Energy Portfolio Manager with asset management firm Tortoise, said “rising geopolitical tensions” were driving up oil prices. The biggest risk was that the United States could re-introduce sanctions on Iran.
“Crude also received support from OPEC members as Saudi Arabia and Russia both reiterated goals to extend the production cut agreement,” Mick said.
OPEC-led production cut
Iraq, the second biggest producer within the Organization of the Petroleum Exporting Countries (OPEC) had said on Monday that it also supports the producer cartel's agreement to cut oil output.
OPEC, together with a group of non-OPEC producers led by Russia, started withholding production in 2017 in order to prop up prices. The deal to cut is scheduled to last through 2018, and there has been recent support by OPEC's de-facto leader Saudi Arabia to extend the cuts into 2019.
Yet some traders cautioned that such a moved faced opposition.
Stephen Innes, head of trading for Asia/Pacific at futures brokerage OANDA in Singapore said there was “considerable resistance” as current or higher prices opened the possibility that even more US shale producers could come back online.
US crude production - thanks largely to shale, or tight oil drilling - has already jumped by almost a quarter since mid-2016, to 10.4 million barrels per day (bpd), taking it past top exporter Saudi Arabia and within reach of top producer Russia, which pumps around 11 million bpd.
“For oil, we expect the supply deficit of the past couple of quarters to give way to a surplus, driven largely by strong growth in US tight oil supply,” Britain's Barclays bank said on Tuesday.
In Asia, Shanghai crude oil futures saw their second day of trading, repeating Monday's high volumes.
Shanghai crude fell over 2 percent to 424 yuan ($67.85) per barrel for its afternoon close at 1500 local time (0700 GMT), down from a last settlement of 433.8 yuan ($69.41).
In dollar-terms, Chinese crude prices are trading between Brent and WTI. Some traders that the influx of foreign oil money into Shanghai crude futures also contributed to the rise in the yuan to a 7-week high on Tuesday against the dollar.