Oil up on supply concerns ahead of OPEC meeting

Oil prices rose on Friday ahead of a meeting of OPEC and other large crude exporters that will focus on production increases as US sanctions restrict Iranian exports.

OPEC and its allies are scheduled to gather in Algeria on Sunday to discuss how to allocate higher supply to offset the shortage of Iranian supplies.

Brent crude oil was up 85 cents at $79.55 a barrel by 1140 GMT. US light crude was up 55 cents at $70.87.

Brent is close to four-year highs, trading just below $80 a barrel, as investors bet that the Organization of the Petroleum Exporting Countries will be unable to compensate fully for the loss of oil from Iran, OPEC’s third-biggest producer.

But the meeting on Sunday is unlikely to be able to change production policy. Such a move would require OPEC to hold what it calls an “extraordinary meeting”, which is not on the agenda.

Tanker tracking and industry data show Iranian exports of crude have already begun to decline well before the imposition of new US sanctions on Tehran.

“Iranian crude exports are coming (down) earlier and bigger than expected, at a time seasonal demand is strong. With spare capacity also falling sharply, the market remains exposed to supply-induced price shocks,” ANZ Bank analysts said in a note to clients.

Jason Gammel, analyst at US bank Jefferies, said he expects Saudi Arabia to try to keep the oil market adequately supplied into 2019, “but at the cost of spare capacity”, a key supply buffer to prevent oil price volatility.

“Spare capacity could fall below 1 percent of demand by year-end if Iranian exports fall below 1 million barrels per day, as now seems likely,” Gammel said.