Oil price jumps on war of words between US and Iran, record OPEC output

Michael
Gruber/Getty Images; Olivier Douliery-Pool/Getty Images; Samantha
Lee/Business Insider

Oil prices jumped Monday as markets weighed OPEC production
hitting its highest level this year against a war of words
between the US and Iran. 

West Texas Intermediate rose 1.45% around 12:45 p.m. ET, climbing
just above $70 a barrel for the first time in three weeks. Brent,
the international benchmark, was up 1.55% to $75.52. 

Reuters reported Monday that OPEC countries pumped 32.64
million barrels per day in July, according to a survey conducted
by the publication, the highest its been in 2018 and with the
Republic of Congo as a
new member. 

OPEC and other supply-cutting countries led by Russia
struck a deal last month to increase production by rolling
back coordinated output cuts that had been in place for more than
a year. The cartel agreed to reduce compliance with those targets
from more than 150% in May to 100%. 

Saudi Arabia appears to have played a significant role in the
overall supply increase, according to the survey. The country has
been positioning itself for record production after months of
pressure from President Donald Trump.

Trump has been seeking to pad the oil market after he withdrew
the US from the Iran deal, a 2015 pact that lifted sanctions on
the country in exchange for restraints on its nuclear weapons
program. The State Department last month called on all
countries to stop importing Iranian oil by November as part of
that move. 

Iranian President Hassan Rouhani has threatened to disrupt

major regional oil production and exports if the Trump
administration follows through with those sanctions.

Saudi Arabia agreed to try to help make up for losses from US
sanctions on Iran, the third-largest member of OPEC, but analysts
question whether the unofficial OPEC leader could reach the
president’s implied production level of 12 million barrels per
day. 

“It appears the oil market has little confidence that Iran
volumes can be easily replaced,” analysts at Bank of America
Merill Lynch wrote in a recent note.

Rapidly escalating tensions between Iran and the US last week
have stoked existing supply concerns among key producers like
Venezuela and Libya. After Rouhani issued a series of veiled
threats toward the US last Sunday, Trump
warned the leader of dire “consequences” on Twitter. 

“A war of words has been heating up between Washington and Tehran
as the snapback of US sanctions approaches,” RBC analysts led by
Helima Croft wrote in a note. “Worryingly, there are a number of
avenues that could metastasize into an unintended escalation.”

Brent is up 41% this year. 

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