Oil prices jump as Hurricane Florence adds to supply concerns

This
Sept. 10, 2018, GOES East satellite image provided by NOAA shows
Hurricane Florence as it threatens the US East
Coast.
NOAA via
AP

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Crude
prices jumped nearly 3% on Tuesday as Hurricane Florence
headed for the eastern coast of the US, adding to existing supply
concerns linked to Washington’s looming oil sanctions against
Tehran.

West Texas Intermediate gained nearly $2 a barrel to $69.45.
Brent, the international benchmark, rose $1.67 a barrel to trade
above $79.

The Category 4 hurricane is due to
make landfall in the Carolinas and
Virginia later this week and could last multiple
days. It could cause “catastrophic” flash flooding and
winds, according to the National Hurricane Center, and has forced
more than 1.5 million people to evacuate their
homes. 

Last week,
tropical storm Gordon shut in oil production in the Gulf of
Mexico for several days. Accendo Markets analyst Artjom
Hatsaturjants said Hurricane Florence is not expected
to disrupt oil-drilling infrastructure, but could
impact energy demand.

Looming sanctions against Iran are also supporting prices,
Hatsaturjants said. The State Department earlier this year called
on buyers to stop importing Iranian barrels by November following
President Donald Trump’s decision in May to withdraw the US from
the Iran nuclear deal.

Last month, the International Energy Agency warned the oil
sanctions could make maintaining global supply “very
challenging and would come at the expense of maintaining an
adequate spare capacity cushion.” Iran is the fourth-largest
producer within the Organization of Petroleum Exporting
Countries. 

It isn’t yet clear if the US will grant sanction waivers to
countries, a tactic the Obama administration used to try to avoid
supply shocks. Trump administration officials have said they
might look at requests on a case-by-case basis, while also
maintaining that the goal is to cut Iranian oil imports to
zero. 

The Trump administration has looked to Middle Eastern producers
to pick up the slack, with Saudi Arabia agreeing earlier this
year to increase oil output by a “measurable” amount. But
analysts remain skeptical the unofficial OPEC leader will be able
to offset a supply squeeze.

“Whether Russia and Saudi Arabia will fill any unexpected supply
gaps remains to be seen until November,” said Hussein Sayed,
chief market strategist at ForexTime. “Geopolitical risks in the
Middle East region will escalate if more pressure is put on Iran,
and that’s likely to keep prices well supported in the short
run.”

The S&P 500 Energy index was up nearly 1.5% on Tuesday
afternoon. 

Get the latest Oil WTI price here.