Oil Climbs as Mideast Instability Stokes Anxiety About Supply

Crude advanced as traders assessed escalating tensions in the Middle East, home to almost half the world’s oil reserves.

Futures added 0.4 percent in New York on Monday, while Brent climbed above $78 a barrel for the first time since late 2014. More than fifty Palestinians were killed in protests over the inauguration of a U.S. embassy in Jerusalem, highlighting tensions in the region less than a week after President Donald Trump reimposed sanctions on Iran, OPEC’s third-largest crude producer.

“The focus just continues to be the situation in Iran and the Middle East,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. “Sometimes, the temperature is high over the Middle East and sometimes it’s lower. Right now, it’s as high as it’s been in a while.”

Oil in New York has increased 3.5 percent this month. Saudi Arabia told OPEC that it has reduced crude output to the lowest since a cartel-led group of nations began a coordinated effort to erase a worldwide glut more than a year ago.

Trump’s decision to withdraw from the 2015 Iranian nuclear accord and reinstate sanctions probably will shrink the Islamic Republic’s crude and condensate exports by 500,000 barrels a day in 2019, according to BMI Research. Even so, United Arab Emirates Energy Minister Suhail Al Mazrouei said OPEC has enough spare capacity to fill any supply gaps.

West Texas Intermediate crude for June delivery rose 26 cents to settle at $70.96 a barrel on the New York Mercantile Exchange.

See also: Geopolitical fear factor leads Brent premium to widest this year

Brent for July settlement added $1.11 to end the session at $78.23 on the London-based ICE Futures Europe exchange. The premium at which the global benchmark crude traded to July WTI closed at $7.24, the the widest since 2015 for the front-month spread.

Energy was the best-performing sector in the S&P 500 Index, led by Range Resources Corp. and Cabot Oil & Gas Corp.

Iranian Foreign Minister Javad Zarif embarked on a diplomatic tour to help tackle Trump’s threat to impose the “highest level” of economic sanctions. Zarif’s first stop was in Beijing; additional meetings with British, French and German ministers are slated May 15 in Brussels.

“On a near-term basis, do sanctions mean much for the global supply today? They really don’t. But what they do, is they add to the perception of tightness,” said Ben Cook, portfolio manager of the TwinLine MLP Fund at BP Capital Fund Advisors LLC in Dallas. The sanctions also “present an opportunity for countries to regain market share at the expense of Iran.”

Other oil-market news:

Gasoline futures advanced 0.5 percent to settle at $2.2002 a gallon on Monday, the highest since October 2014. Diesel futures advanced 1.2 percent to settle at $2.2496 a gallon, the highest since February 2015. The highest gasoline prices in more than three years won’t stop 37 million Americans from clogging the nation’s motorways next week as summer kicks off with Memorial Day weekend. U.S. crude stockpiles probably fell 1.75 million barrels last week, according to the median estimate of analysts surveyed by Bloomberg. Crude inventories at the Cushing, Oklahoma, pipeline hub rose by an estimated 550,000 barrels last week, according to a forecast compiled by Bloomberg. The Energy Information Administration said crude output from major U.S. shale plays will total 7.178 million barrels a day in June, according to a monthly drilling report.