By Myra P. Saefong, MarketWatch , Christopher Alessi
Protests in Iran raise risk of oil output disruptions
Oil rallied Wednesday to a close at a nearly three-year high as antigovernment protests rattled Iran, raising concerns over the potential for disruptions to crude output from OPEC's third-largest producer.
February West Texas Intermediate crude on the New York Mercantile Exchange added $1.26, or 2.1%, to settle at $61.63 a barrel. March Brent gained $1.27, or 1.9%, to end at $67.84 a barrel on ICE Futures Europe.
Both WTI and Brent scored their highest settlements since December 2014, according to data from Dow Jones.
Antigovernment demonstrators have taken to the streets (https://www.wsj.com/articles/iran-state-tv-highlights-pro-government-rallies-after-days-of-unrest-1514976157) in cities across Iran over the past week to voice anger over the country's economic woes. The protests, which have left more than 20 people dead, have reignited a geopolitical risk premium in global oil markets amid concerns the civil unrest could result in crude supply disruptions out of the Islamic Republic.
"Political uncertainty in Iran has moved in to support the market this week as protests are expected to continue in the days ahead," said Robbie Fraser, commodity analyst at Schneider Electric. "While there is currently no tangible threat to oil supply, it is not yet clear how extensive and widespread the current protest movement could become."
"Ultimately, any sign of instability in [the Organization of the Petroleum Exporting Countries'] third largest producer will tend to provide at least a near-term lift until the situation appears to be trending towards resolution," he said in a daily note.
Analysts at Commerzbank said that protests in Iran, so far, "have had no impact on the country's oil production or oil shipments."
But they cautioned the situation could change if the U.S. were to impose fresh sanctions on the Iranian regime or dismantle the 2015 international agreement to curb Iran's nuclear program. "This justifies a certain risk premium on the oil price, though this should already be more than sufficiently reflected in the current price level," the Commerzbank analysts wrote in a note Wednesday.
The unrest in Iran comes as oil prices have been steadily climbing in recent months, helped by geopolitical risk throughout the Middle East--including in Iraq--as well as declining global inventories and OPEC's continued efforts to curb production.
Crude output from the U.S., which isn't part of the OPEC-led deal to reduce production, has worked to offset at least some of OPEC's efforts to rebalance the market.
The U.S. Energy Information Administration will release its weekly report on domestic petroleum supplies and production on Thursday, a day later than usual because of the New Year's Day holiday. The American Petroleum Institute will release its inventory data late Wednesday.
Analysts surveyed by S&P Global Platts expect the EIA to report a drop of 5.7 million barrels in crude stocks for the week ended Dec. 29, after five-straight weeks of declines. Supplies of distillates are seen higher by 1.3 million barrels and gasoline is forecast to climb by 2 million barrels.
Crude prices saw some minor downward pressure Tuesday (http://www.marketwatch.com/story/oil-holds-near-2-year-high-with-eyes-on-irans-tensions-2018-01-02), as the Forties Pipeline System in the North Sea came fully back online. The pipeline, which transports 450,000 barrels of North Sea oil a day, was shut down in mid-December due to a hairline pipe crack, tightening supply and buoying prices.
On Nymex, February gasoline rose 2% to $1.797 a gallon.
Despite freezing temperatures across much of the U.S (http://www.marketwatch.com/story/deep-freeze-spreads-to-southern-texas-and-central-florida-2018-01-02)., heating fuel futures ended on a mixed note. February heating oil gained 1.4% to $2.088 a gallon after a 0.5% loss Tuesday, while February natural gas pulled back from the one-month high hit a day earlier to settle down 1.6% Wednesday, at $3.008 per million British thermal units.
Read:Oilfield-services stocks are about to stage a big rebound, Credit Suisse says (http://www.marketwatch.com/story/oilfield-services-stocks-are-about-to-stage-a-big-rebound-credit-suisse-says-2018-01-03)
-Myra P. Saefong; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires