Oil near 2014 highs on Iran tensions, Venezuela crisis

Iran deal decision affecting oil prices

US oil rose above $70 a barrel for the first time since November 2014 as traders braced for a re-imposition of USA sanctions on Middle East crude producer Iran.

"Fresh sanctions, which would remove some of Iran's crude supplies from the global market, will tighten the balance between demand and supply, and support crude prices", Japan Oil, Gas & Metals National Corp chief economist Takayuki Nogami said by telephone from Tokyo.

"The market at this stage is pricing in a US stepping away from the nuclear deal, so it's allowed the risk premium to build even further", said Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. WTI on Friday hit its highest level since November 2014.

Crude at US$60 to US$65 a barrel is "suitable", an Iranian official said on Sunday, signaling a split with fellow OPEC member Saudi Arabia, which is said to be aiming for US$80 oil. The breakout $70 a barrel is not a fluke, but has been building as global demand exceeded exceptions and the false mantra of lower for longer oil prices turned out to be a fantasy. Analysts also warned about ongoing economic crisis in oil producing Venezuela. Recent price action suggests that investors have not yet concluded pricing in further risk premium as we edge closer to the May 12th deadline Trump has set himself to decide whether the USA will remain in the 2015 Iran nuclear deal, and any comments Trump makes in the lead up to the event have the potential to encourage fireworks in the oil markets. What also is clear the market is going to be more sensitive to disruption as the biggest oil glut in mankind's history is now just a memory.

Venezuela's output has halved since the early 2000s to 1.5 million barrels per day (bpd), as the South American country has failed to invest enough in its oil industry. The constant fluctuation in oil prices is destabilizing for future investment and security of supply, Iranian Oil Minister Bijan Namdar Zanganeh said.

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Expressing doubts over Iran's sincerity, Trump has threatened to walk away from the 2015 agreement by not extending sanctions waivers when they expire on May 12, which would likely result in a reduction of Iran's oil exports.

Iran has come out against higher prices, after a rally of over 12% this year on output cuts by the Organization of Petroleum Exporting Countries and its allies as well as rising geopolitical risks in the Middle East. The rationale is obvious: the higher the price of oil the more attractive Aramco would be for investors.

But U.S. output has soared by more than a quarter in the last two years, to 10.62 million bpd.

The increases came despite the addition of nine USA oil rigs in the week to May 4, bringing the count to a three-year high of 834, according to energy services firm Baker Hughes.

USA output will likely rise further this year, towards or past Russia's 11 million bpd, as its energy firms keep drilling for more.

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