Picture: REUTERS
Picture: REUTERS

New York — Oil prices rose about $1 a barrel on Tuesday as US sanctions squeezed Iranian crude exports, tightening global supply, despite efforts by Washington to get other producers to increase output.

Brent crude futures rose $1.13 to $78.50 a barrel, a 1.5% gain, by 2.48pm GMT. US West Texas Intermediate (WTI) crude gained $1.10, or 1.6%, at $68.64 a barrel. WTI's discount to Brent widened to as much as $10.38 a barrel, its deepest since June 20.

"Widening Brent-WTI differentials in association with a strengthening Brent curve and expanding NYMEX crack spreads continue to keep us in a cautious bullish frame of mind," Jim Ritterbusch, president of Ritterbusch and Associates, said in a note. "Nearby Brent has been gaining independently during the past month as Iranian exports have begun to decline significantly well ahead of the official beginning of sanctions." 

Washington has told its allies to reduce imports of Iranian oil and several Asian buyers, including South Korea, Japan and India appear to be falling in line. But the U.S. government does not want to push up oil prices, which could depress economic activity or even trigger a slowdown in global growth.

On Monday, in Washington, US energy secretary Rick Perry met Saudi energy minister Khalid al-Falih, as the Trump administration encourages big oil-producing countries to keep output high. Perry will meet with Russian energy minister Alexander Novak on Thursday in Moscow.

Russia, the US and Saudi Arabia are the world's three biggest oil producers by far, meeting about a third of the world's almost 100-million barrels per day (bpd) of daily crude consumption.

Russia's Novak said on Tuesday that Russia and a group of producers around the Middle East which dominate oil cartel Opec may sign a new long-term co-operation deal at the beginning of December, the TASS news agency reported. Novak did not provide details.

A group of Opec and non-Opec producers have been voluntarily withholding supplies since January 2017 to tighten markets, but with crude prices up by more than 40% since then and markets significantly tighter, there has been pressure on producers to raise output.

US crude inventories were forecast to have fallen for a fourth consecutive week last week, according analysts polled ahead of reports from industry group the American Petroleum Institute (API) at 8.30pm GMT and the US department of energy on Wednesday.

Also supporting prices was an attack on the headquarters of Libya's National Oil Corporation (NOC) in the capital Tripoli on Monday. The NOC has continued to function relatively normally amid chaos in Libya. Oil production has been hit by attacks on oil facilities and blockades, though last year it partially recovered to about 1-million bpd.

As Middle East markets tighten, Asian buyers are seeking alternative supplies, with South Korean and Japanese imports of US crude hitting a record in September. US oil producers are seeking new buyers for crude they used to sell to China before orders slowed because of the trade disputes between Washington and Beijing. Traders said this is one reason that the discount for US crude versus Brent has widened.