US Crude Soars to Fresh Multiyear High as Rally Continues

Both benchmarks have climbed in three consecutive sessions, with traders increasingly betting that U.S. sanctions against Iran and lower output from producers such as Venezuela and Libya will cause supply deficits.

With Iranian crude exports already falling, some analysts expect a further decline ahead of the Nov. 4 deadline for companies to stop buying oil from the Islamic Republic to comply with U.S. sanctions. Bets that large producers such as Saudi Arabia won’t be able to easily fill a supply gap have pushed both U.S. and global prices up about 25% for the year.

A gas refinery in the South Pars gas field, Asalouyeh, Iran. Prices have been bolstered by falling Iranian crude exports ahead of the reimposiiton of U.S. sanctions on the Islamic Republic’s oil industry. Photo: Vahid Salemi/Associated Press

“There is enough fear out there,” said Bill O’Grady, chief market strategist at Confluence Investment Management. “Taking that Iranian oil off the market is a big deal because it isn’t obvious where it’s going to get taken care of.”

While Brent steadily hit fresh multiyear highs last week, U.S. prices have lagged behind, with domestic infrastructure bottlenecks in key supply areas leading to a nearly $10 gap between the two benchmarks.

Some analysts expect that gap and the recent rally to lead to a surge in U.S. exports that could deplete domestic inventories, pressuring consumers at the pump and increasing fuel costs for large companies.

“It hasn’t really caused any serious trouble in terms of consumer confidence yet, but it is a very legitimate fear,” Mr. O’Grady said.

A continued rally could pressure the Trump administration to consider dipping into the country’s strategic oil reserves or granting waivers to companies buying Iranian oil, some analysts said. President Trump has consistently criticized the Organization of the Petroleum Exporting Countries in recent weeks for allowing high prices.

But OPEC and its partner producers decided late last month not to ramp up production at a faster rate than planned to meet the Iranian shortfall, fueling the recent price surge.

Analysts have also said global oil demand has remained steady despite continuing trade tensions across the world, meaning any further supply surprises could lead to a spike in prices.

Still, some investors caution that complications in trade discussions between the U.S. and China or data showing higher output from Saudi Arabia and Russia could calm the market, as occurred this summer after prices soared in June.

Analysts have also been closely monitoring weekly U.S. inventories for signs of higher supply that could curb price gains.

Among refined products Monday, gasoline futures rose 4.18 cents, or 2%, to $2.1275 a gallon. Diesel futures climbed 5.94 cents, or 2.5%, to $2.4079 a gallon.

WSJ