Oil is near record high, and traders expect it to keep on going

London — Brent crude oil hovered close to its highest since November 2014 on Monday, supported by supply concerns before US sanctions against Iran come into force in November.

Benchmark Brent was up 16 US cents at $82.89 a barrel by 8.52am GMT, after touching $83.32, the highest level in almost four years. US light crude was up 4c at $73.29.

"Saudi Arabia is signalling that it does not have a lot of prompt spare capacity available, or that it does not have the will to really use it on a proactive basis," Petromatrix strategist Olivier Jakob said.

"There's nothing right now that gives a strong incentive to be a strong seller of the market," he said.

Investors have indicated they see prices rising, loading up on options that give the holder the right to buy Brent crude at $90 a barrel by the end of October. Open interest in call options at $90 a barrel has risen by nearly 12,000 lots in the last week to 38,000 lots, or 38-million barrels.

Higher oil prices and dollar strength, which has battered the currencies of several big crude importers, could hit demand growth in 2019, analysts said. But, for now, the focus is on US sanctions on Iran's energy industry that will apply from November 4 and are designed to cut crude exports from the third-biggest producer in oil cartel Opec.

Several major buyers in India and China have signalled they will cut purchases of Iranian oil. China's Sinopec said it had halved loadings of Iranian oil in September.

"If Chinese refiners do comply with US sanctions more fully than expected, then the market balance is likely to tighten even more aggressively," Edward Bell, commodity analyst at Emirates NBD bank wrote in a note.

Hedge funds have increased bets of a further price rise. Exchange data shows the combined net long position in Brent and US light crude futures and options at its largest since late July, equivalent to about 850-million barrels of oil.

US President Donald Trump spoke to Saudi King Salman on Saturday on ways to maintain sufficient supply.

"Even if [Saudi Arabia] wanted to bend to President Trump's wishes, how much spare capacity does the Kingdom have?" said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

With about 1.5-million barrels per day of Iranian oil expected to go offline on November 4, prices could "rocket higher with the flashy $100 per barrel price tag indeed a reasonable sounding target" if investors doubted the Saudi ability to respond with enough extra output, he said.

Reuters