NEW YORK] Crude futures jumped over 2 per cent on Tuesday and US oil topped US$70 for the first time in two months as Washington pushed allies to halt imports of Iranian crude, which would constrain global supplies.
The market rallied further in post-settlement trading, after the American Petroleum Institute said US crude inventories fell a surprising 9.2 million barrels, far exceeding the decline of 2.6 million barrels that had been expected.
Brent crude gained US$1.58 to settle at US$76.31 a barrel, while West Texas Intermediate crude climbed US$2.45 to settle at US$70.53. In post-settlement trading, where volumes are small, Brent extended gains to US$76.61 a barrel, while US crude rose to US$70.76 a barrel.
Washington is pushing countries to halt imports of Iranian oil from November, a senior State Department official said, adding it will not grant waivers to sanctions.
That "lit a fire" under oil markets today, said Matt Smith, director of commodities research at ClipperData. It overshadowed Saudi Arabia's plans to pump up to 11 million barrels of oil in July, the most in its history, traders said.
US President Donald Trump in May said his administration was withdrawing from a 2015 deal between Iran and six world powers aimed at curbing Tehran's nuclear capabilities in exchange for the lifting of some sanctions.
During the previous sanctions regime, some Asian countries received waivers enabling them to buy Iranian crude. If waivers are not granted, that suggests reduced flows to Asia as well as to Europe.
"This is a new development," Mr Smith said. "If we are going to see more Iranian barrels coming off the market, that is likely to be bullish for US exports."
Iran's seaborne crude exports fell to about 1.93 million bpd in June from 2.38 mln bpd in May and 2.58 mln bpd in April, based on Thomson Reuters data. The US official specifically cited India and China as countries that would have to stop accepting Iranian imports, though officials have not yet spoken with those countries.
India imports large quantities of oil from Iran, though the country has suggested it would comply with Washington; Beijing, meanwhile, has not committed to an agreement to stop buying Iranian oil, and rising trade tensions with the United States may make such an agreement less likely.
The market was also dealing with the outage at Syncrude Canada's 360,000 bpd oil sands facility near Fort McMurray, Alberta, which a spokeswoman confirmed will remain offline through July. Traders expect this to reduce crude flows to Cushing, Oklahoma, delivery point of the US crude futures contract.
In addition, a power struggle among the two parallel Libyan national oil companies created uncertainty on the country's export ability.
These output losses follow a move by the Organization of the Petroleum Exporting Countries and other oil producers last week to increase supply by around 1 million barrels per day (bpd).
"There is concern that the recent agreement by Opec and non-Opec producers will not be enough to satisfy oil demand," said Andrew Lipow, president of Lipow Oil Associates.
The API data showed builds in petrol and diesel inventories. The figures are followed with Wednesday's release of US Energy Information Administration figures on oil and refined product stocks.