Oil prices are rising on Wednesday despite higher US weekly crude inventories. The Energy Information Administration (EIA) reported a gain of 5.4 million barrels but rising tensions in the Middle East forced US diplomats to withdraw from Iraq putting more emphasis on a showdown between America and Iran.
The attacks on Saudi tankers and Iran ending its nuclear commitments have escalated turmoil in the region with the US ready to apply pressure in Tehran and evacuating its embassy in Iraq due to security concerns.
Supply disruptions have kept crude higher, even as the US has ramped up production. The OPEC+ agreement to limit output is the biggest factor, but geopolitical disruptions like the US sanctions against Iran and Venezuela and the armed conflict in Libya are added to the situation in Saudi Arabia.
Iran has said that its goal it’s not military confrontation, but just a response to US escalating its efforts. Supply disruptions have been the major factor boosting oil prices. Geopolitical
Saudi Arabia is seen as the main producer that could cover the gap in supply left by Iranian crude. US President Donald Trump has tweeted about the OPEC’s role in keeping prices lower if they increase their output.
The deal between OPEC and other major producers will reach its end in June, but it could be extended if participants deem the market has not reach price stability which was their main goal. Russia remains a big question mark as it has sacrificed its revenue to be part of the deal and could be ready to take advantage of higher prices ahead of even higher levels of US production causing another drop.
US production has increased dramatically to the point that the one-time net importer is now an exporter of energy products. Shale technology has tipped the scales of global production and threatens to reduce the influence that the OPEC has on the market. The decision from OPEC members to fight fire with fire and flood the market to drive shale operations into bankruptcy backfired and forced the group to reach out to non-OPEC members in order to have a significant impact on the market by collectively reducing their output.