(Bloomberg) -- Oil extended gains after leaping to a six-month high after the U.S. said it’ll no longer give any buyer of Iranian crude a waiver from sanctions aimed at cutting the OPEC producer’s exports to zero.
Futures in London added as much as 0.6 percent, a day after U.S. Secretary of State Mike Pompeo said any nation that continues to buy Iranian oil will face American sanctions. In response, the Islamic Republic threatened to shut the Strait of Hormuz, a key waterway for Middle East supplies. Meanwhile, Saudi Arabia said it will coordinate with other producers to ensure that adequate supplies are available.
Crude has rallied almost 40 percent this year as OPEC and its partners embarked on their mission to cut output and avert a global glut. Disruptions in Venezuela, Nigeria and Libya have further squeeze supplies. America’s decision to end exemptions for purchasing oil from the group’s fourth-largest producer adds bullish sentiment, with RBC Capital Markets forecasting a loss of 700,000 to 800,000 barrels a day in Iranian exports.
“Oil quickly repriced higher on panic fears that markets could face an immediate supply crunch, adding more pressure to the already tenuous global supply squeeze,” said Stephen Innes, head of trading and market strategy at SPI Asset Management. “This suggests that $80 Brent under current market conditions -- something we thought unlikely only days ago -- should now be considered a possibility.”
Brent for June settlement climbed as much as 46 cents to $74.50 a barrel on the London-based ICE (NYSE:ICE) Futures Europe exchange, and was at $74.34 a barrel at 11:10 a.m. in Singapore. Prices rose $2.07 on Monday to $74.04, the highest close since Oct. 31. The global benchmark crude was at a premium of $8.44 to U.S. West Texas Intermediate.
‘Appropriate Supply’
WTI for June delivery rose as much as 40 cents to $65.95 a barrel on the New York Mercantile Exchange before trading at $65.89 a barrel. The May contract expired on Monday at a six-month high of $65.70.
Pompeo said he’s confident that the oil market will remain stable and that Saudi Arabia, the United Arab Emirates and the U.S. will ensure an “appropriate supply” of oil. President Donald Trump’s administration had last year granted six-month exemptions to eight buyers allowing them to purchase limited amounts of Iranian oil. It won’t renew the waivers after they expire on May 2.
Saudi Energy Minister Khalid Al-Falih said the kingdom and other suppliers will ensure the market doesn’t go out of balance. The biggest member of the Organization of Petroleum Exporting Countries and the U.A.E. can boost their combined output by about 1.5 million barrels per day within a short period, according to people who asked not to be identified as the information is private.
Meanwhile, a senior Iranian military official said the Islamic Republic will close Hormuz, a narrow waterway carrying a fifth of the world’s traded oil if it’s prevented from using it, the state-run Fars news agency reported.
“In the event of any threats, we will not have the slightest hesitation to protect and defend Iran’s waterway,” Fars news agency reported, citing Alireza Tangsiri, head of the Revolutionary Guard Corps navy force.
