Picture: REUTERS
Picture: REUTERS

Singapore — Oil prices held firm on Friday on strong demand, Opec-led supply cuts and looming US sanctions against major crude exporter Iran.

But markets remained below multi-year highs from the previous day as surging output from the US is expected to offset at least some of the shortfalls.

Brent crude futures were at $79.57 a barrel at 3.10am GMT, up 27c, or 0.3% from their last close.

Brent broke through $80 for the first time since November 2014 on Thursday.

US West Texas Intermediate (WTI) crude futures were at $71.62 a barrel, up 13c, or 0.2%, from their last settlement.

Crude prices have received broad support from voluntary supply cuts led by oil cartel Opec aimed at tightening the market.

"Global inventories are approaching long-run averages, suggesting that the co-ordinated Opec-non-Opec supply cuts have been successful," said Jack Allardyce, oil and gas research analyst at Cantor Fitzgerald.

Beyond Opec’s cuts, strong demand as well as falling output from Venezuela and a US announcement earlier this month to renew sanctions against Opec-member Iran helped push Brent up by 20% since the start of the year.

"The dual supply shortcomings from Iran and Venezuela continue to provide substantial support," said Stephen Innes, Head of Trading for Asia-Pacific at futures brokerage Oanda in Singapore.

With crude prices at levels not seen since late 2014, Allardyce warned the high fuel costs could start crimping consumption.

At $80 a barrel, Asia’s thirst for oil costs the region a whopping $1-trillion a year, more than twice what it was in 2015-16, the two years before the Opec-cuts, which started in 2017.

Longer term

The crude oil price forward curve is in firm backwardation, a structure that suggests a tight market as prices for immediate delivery are higher than those for later dispatch.

Front-month Brent prices are now almost $1.80 a barrel more expensive than those for delivery in December.

"Longer-dated [crude] futures … remain in backwardation, driven by confidence in indefatigable US shale producers," US firm Height Securities said in a note, although it warned that strong demand as well as looming disruptions due to renewed US sanctions against Iran and falling output in Venezuela could soon start lifting the crude forward curve too.

US crude oil production has soared by more than 25% in the past two years, to a record 10.72-million barrels a day.

That puts the US within reach of top producer Russia, which pumps about 11-million barrels a day.

As a result of its surging production, US crude is increasingly appearing on global markets as exports.