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

London — Oil eased on Wednesday, having neared its highest level so far in 2018 after a drop in US crude inventories and the prospect of the loss of Iranian supply added to concerns over the delicate balance between consumption and production.

Brent crude futures were last down 23c on the day at $78.83 a barrel by 9.23am GMT, having touched a session peak of $79.66, the highest since late May, when the price broke above $80.

US crude futures were up 35c at $69.60 a barrel.

"We think oil market fundamentals are increasingly supportive of crude prices, at least at current levels," said Gordon Gray, HSBC's global head of oil and gas equity research.

"While we aren't explicitly forecasting Brent to rise to $100 a barrel, we see real risks of this happening. The fact that much higher supply is already needed from the likes of Saudi Arabia — and the low levels of spare capacity remaining — leave the global system highly vulnerable to any further significant outage."

US crude stocks fell by 8.6-million barrels in the week to September 7 to 395.9-million, the American Petroleum Institute (API) said on Tuesday, while the US Energy Information Administration (EIA) cut its forecast for US crude output growth in 2019.

Outside the US, traders have been focusing on the impact of US sanctions against Iran that will target oil exports from November.

While we aren't explicitly forecasting Brent to rise to $100 a barrel, we see real risks of this happening
Gordon Gray

"Iran is increasingly becoming the preoccupation of the crude market. The last couple of weeks have seen the expected squeeze on Iranian crude flows taking shape, with overall outflows down markedly," consultant JBC Energy said.

'Fragile' market

Russian energy minister Alexander Novak on Wednesday warned of the effect of US sanctions against Iran.

"This is a huge uncertainty on the market — how countries, which buy almost 2-million barrels a day of Iranian oil, will act. The situation should be closely watched, the right decisions should be taken," he said.

Novak said global oil markets were "fragile" due to geopolitical risks and supply disruptions.

Should markets overheat and prices spike, however, Novak said Russia could increase its output.

"Russia has the potential to raise production by 300,000bbl/day mid-term, in addition to the level of October 2016," he said.

That month Russia produced 11.247 million barrels a day, a post-Soviet Union record-high.

Oil markets were also watching Hurricane Florence offshore the US amid surging demand for gasoline and diesel, although crude output will not be affected on the storm's current route.

The storm is expected to make landfall on the US East Coast on Friday.