Oil prices rise for second consecutive week on expected tighter supply

Oil Prices Rise as US Sanctions on Iran and Opec+ Output Plan Boost Expectations of Tighter Supply

Oil Prices Settle Higher

Oil prices settled higher on Friday, recording a second consecutive weekly gain, as fresh US sanctions on Iran and the latest output plan from the Opec+ producer group raised expectations of tighter supply. Brent crude futures rose $0.16, or 0.2%, to settle at $72.16 a barrel, while US West Texas Intermediate (WTI) crude futures rose $0.21, or 0.3%, to $68.28.

Weekly Gains

On a weekly basis, Brent rose 2.1% and WTI about 1.6%, their biggest gains since the first week of the year.

US Sanctions on Iran

On Thursday, the US Treasury announced new Iran-related sanctions, which for the first time targeted an independent Chinese refiner among other entities and vessels involved in supplying Iranian crude oil to China. "That probably sent a message to the market that Chinese companies, the largest buyers of Iranian oil, are not immune to sanctions pressure from the US," said Scott Shelton, energy analyst at TP ICAP.

Opec+ Output Plan

The tightening US sanctions regime will probably keep some market participants involved in shipping Iranian crude more cautious going forward, according to UBS analyst Giovanni Staunovo. The Opec+ plan for seven members to cut output further to compensate for producing more than agreed levels is also supporting oil prices. The plan would represent monthly cuts of between 189,000 barrels per day (bpd) and 435,000 bpd until June 2026.

Market Reaction

Oil market participants will want more proof of Iraq, Kazakhstan, and Russia complying with cuts announced on Thursday to gain more support from the plan, said StoneX oil analyst Alex Hodes. Kazakhstan’s oil output has reached a record high in March on the back of oilfield expansion, further exceeding Opec+ production quotas, two industry sources told Reuters.

Conclusion

The combination of US sanctions on Iran and the Opec+ output plan has raised expectations of tighter supply, leading to higher oil prices. The market will continue to closely monitor compliance with the Opec+ plan and the impact of the US sanctions on Iranian oil exports.

FAQs

• What is the impact of the US sanctions on Iran on the oil market?
  The US sanctions on Iran are expected to lead to a reduction in Iranian oil exports, which could lead to tighter supply and higher prices.
• What is the Opec+ output plan?
  The Opec+ plan is a plan to reduce oil production by seven members to compensate for producing more than agreed levels. The plan would represent monthly cuts of between 189,000 barrels per day (bpd) and 435,000 bpd until June 2026.
• How will the Opec+ output plan affect oil prices?
  The Opec+ output plan is expected to support oil prices by reducing supply and leading to higher prices.