An oil well is seen near Denver, Colorado. Picture: Reuters
An oil well is seen near Denver, Colorado. Picture: Reuters

New York — Oil prices rose on Monday as OPEC reported that the global oil glut has been virtually eliminated, while US crude’s discount to global benchmark Brent widened to more than $7, its deepest in nearly five months.

Global benchmark Brent was up $1.08 cents at $78.20 a barrel by 15.56 GMT and US crude rose 43 cents to $71.13.

The report from the Organization of the Petroleum Exporting Countries "was bullish. That absolute plunge in Venezuelan production ... just highlights how tenuous the market is in terms of the supply and demand balance," said John Kilduff, Partner at Again Capital LLC.

The OPEC report, published Monday, showed Venezuelan production at its lowest in decades and said the global oil glut had been virtually eliminated. Even so, OPEC and other producing countries were still trimming output more than their supply-cutting pact required.

US crude’s discount to Brent was more than $7, the widest since late December.

"You have the threat that a high enough price will start to activate the 7,700 drilled but uncompleted wells in the lower 48 states," said Walter Zimmerman, chief technical analyst at ICAP TA.

"And meanwhile, if Iranian crude is really taken off the water, it’s going to impact Brent much more than it’s going to impact WTI," Zimmerman said.

It is unclear how hard US sanctions will hit Iran’s oil industry. Much will depend on how other major oil consumers respond to Washington’s action against Tehran, which will take effect in November.

China, France, Russia, Britain, Germany and Iran all remain in the nuclear accord that placed controls on Tehran’s nuclear program in exchange for an easing of sanctions.

"Germany has said it will protect its companies from US sanctions, Iran has said French oil giant Total has yet to pull out of its fields and all the while it seems the Chinese are ready to fill the void created by the U.S," said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

Michael Wittner, analyst at Societe Generale, forecasts US sanctions will remove 400,000-500,000 barrels per day of Iranian crude from the global market.

"In 2012 the reduction in Iranian crude production and exports was around 1 million bpd," Wittner said. "This time around, we expect much less of an impact." Also supportive to prices was data from market intelligence firm Genscape showing that inventories at Cushing, Oklahoma, the delivery point for US crude futures, fell more than more than 400,000 barrels in the week to May 11, according to traders who saw the data.

Reuters

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