Oil steady, supported by U.S. stocks and supply concerns

LONDON (Reuters) – Oil prices steadied on Thursday but the market remained bullish after news of another fall in U.S. crude inventories and on signs that OPEC may not raise production enough to compensate for the loss of Iranian exports hit by U.S. sanctions.

U.S. light crude oil was 40 cents higher at $71.52 after rising nearly 2 percent on Wednesday.

The North Sea benchmark has been trading below $80 for the past week after conflicting reports of the market views of Saudi Arabia, the biggest producer in the Organization of the Petroleum Exporting Countries (OPEC).

Reuters reported two weeks ago that Saudi Arabia wanted oil to stay between $70 and $80 a barrel for now, seeking a balance between maximizing revenue and keeping a lid on prices until U.S. congressional elections.

But on Tuesday Bloomberg cited unnamed Saudi sources as saying the kingdom was comfortable with oil above $80, at least for the short term, helping to push prices higher.

“Brent is definitely fighting the $80 line, wanting to break above, but is still held back by the $70-$80-range hypothesis. But this is likely going to break very soon,” said SEB Markets chief commodities analyst Bjarne Schieldrop.

U.S. crude oil stockpiles fell for a fifth straight week to 3-1/2 year lows in the week to Sept. 14, while gasoline inventories also showed a larger than expected draw on unseasonably strong demand, the Energy Information Administration said on Wednesday.

Crude inventories fell by 2.1 million barrels, compared with expectations for a decrease of 2.7 million barrels.

“The bulls are back in charge,” said Stephen Innes, head of trading for Asia-Pacific at brokerage OANDA.

U.S. sanctions on Iran’s oil exports come into force on Nov. 4 and many buyers have already scaled back Iranian purchases.

It is unclear how easily other producers, such as Saudi Arabia, Iraq and Russia, can compensate for lost supply.

OPEC and other producers, including Russia, meet on Sunday in Algeria to discuss how to allocate supply increases to offset the loss of Iranian barrels.

“The current market betting line suggests price levels rather than global supply levels will be the key determinant on turning on the oil taps,” Innes said.

OPEC sources have told Reuters no immediate action is planned and producers will discuss in Algeria how to share a previously agreed output increase.