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Abu Dhabi, UAEWednesday 18 July 2018

Oil hits highest price in three years

Brent for July settlement rose as much as 99 cents, or 1.3 per cent, to $79.22 a barrel on the London-based ICE Futures Europe exchange

Oil prices have started to decline as output increases. David McNew/Reuters
Oil prices have started to decline as output increases. David McNew/Reuters

Oil climbed to a three-year high above $79 a barrel in London on heightened political risks in parts of the Middle East following unrest in Gaza and the return of sanctions against Iran.

Brent futures advanced 1.1 per cent. Dozens of Palestinians were killed in clashes with Israeli troops in Gaza after the US opened an embassy in Jerusalem. Foreign ministers from the UK, France and Germany will meet with their Iranian counterpart, Javad Zarif, to discuss salvaging an accord that allows Iranian oil exports, after the US withdrew last week.

US President Donald Trump’s withdrawal from a 2015 nuclear accord with Iran has driven oil to the highest since November 2014. American measures could cut the Iran’s crude exports, and traders are watching whether Opec and its allies will end their agreement to curb supply and increase production instead to fill in the gap.

“US sanctions on Iran take centre stage in the oil market,” said Norbert Ruecker, head of macro and commodity at Julius Baer Group in Zurich.

Brent for July settlement rose as much as 99 cents, or 1.3 per cent, to $79.22 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $7.52 premium to July WTI, heading for the widest spread since 2015.

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West Texas Intermediate crude for June delivery was 59 cents higher at $71.55 a barrel on the New York Mercantile Exchange as of 11:46am in London, after rising 26 cents on Monday. Total volume traded Tuesday was 17 per cent above the 100-day average.

Oil for September delivery rose 1.6 per cent to 472.8 yuan a barrel on the Shanghai International Energy Exchange. The contract fell 1.2 per cent on Monday.

Saudi Arabia, Opec’s de-facto leader, last month pumped the least crude since the output-cut deal began in early 2017. The numbers provided by the kingdom indicate that it could increase production by about 190,000 barrels a day and still respect the limit agreed with fellow members if it decides to compensate for the loss of Iranian barrels.

Supply concerns are also increasing with continuing tensions in parts of the Middle East region. Fifty-five Palestinians were killed in confrontations with Israeli troops on Monday after tens of thousands converged on the Gaza Strip border to protest the US embassy in Jerusalem. With more than 1,200 people wounded by live fire, it was the deadliest day in Gaza since Hamas’s last war with Israel in 2014.