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Brent Gains on Supply Disruptions

July 9, 2018 at 14:29 by Matt Jackson

Brent crude has gained nearly 0.8% in price on Monday, as fears grow over potential trade disruption.The market is expecting supply from Libya, Venezuela, and Iran to suffer in the coming months. Despite Brent’s rise, however, WTI crude prices have slipped on news of an increase in the number of US oil rigs.

Iran’s supply problems are well documented. They have been hit by sanctions from the USA, who have also promised to impose tariffs on any country that continues to buy Venezuelan oil come November. Although some countries, especially China who are embroiled in a trade spat with the USA, have declared that they will buck the trend, presumably in a bid to gain access to cheaper oil supplies.

Libya has seen its oil production levels drop significantly since major political turmoil last month led to a deadlock. Mustafa Sanalla, chairman of state oil company National Oil Corp. has said that production will continue to decrease every day until the situation is resolved. Libya has the largest oil reserves of any African nation, but more than 850,000 barrels a day have been prevented from shipping out of the country, obviously effecting their own supply but also potentially causing problems for OPEC, in their bid to increase supply and meet the shortfall caused by Venezuela and Iran’s problems.

Venezuela is also facing supply problems, despite the promise of financial assistance from China. The country has long suffered economic problems, and the controversial re-election of President Nicolas Maduro has seen Europe and the USA threatening sanctions against them. It has been rumoured that China will prop up the Venezuelan oil industry with an initial investment equivalent to $250 million. Venezuela has been repaying China for old loans by exporting hundreds of thousands of barrels of oil per day. However, analysts do not believe that this will be enough to make up for the impending losses.

Despite these supply concerns, there has been at least some good news for buyers of American oil. Baker Hughes released data on Friday, showing that the number of US rigs had increased by 5, which is an early indication that there will be an increase in supply of the American benchmark.

Increased supply has seen WTI crude slip by 0.11% to $73.72, while global production problems pushed Brent crude oil prices up 0.79% to $77.72 at 15:15 GMT.

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