Oil relents slightly, but set to resume upward march

Oil prices took a breather on Friday, with Brent sitting just shy of $80 per barrel. The Venezuelan election on Sunday could be the next near-term catalyst for the oil market.

Brent briefly breached $80 per barrel this week, although it is facing resistance at that level. Still, oil prices are at their highest in three and a half years.

“There’s the Iran story which continues to develop and the general talk about a tighter market. It will be interesting to see if we make a clean break of $80 next week. It seems like that’s the direction we are going,” Jens Pedersen, a senior analyst at Danske Bank A/S, said in a Bloomberg interview.

Saudi oil minister Khalid al-Falih said the Organisation of Petroleum Exporting Countries and Russia were discussing price volatility and the health of the oil market. Al-Falih has said that OPEC would step in to mitigate and supply losses, although for now, the preference seems to be to leave the production limits unchanged. OPEC officials have said the price rally is being driven by fear and not based on the fundamentals.

Brent crude futures were at $79.57 per barrel at 03:10 GMT on Friday, up 27 cents, or 0.3 per cent from their last close. Brent broke through $80 for the first time since November 2014 on Thursday.

US West Texas Intermediate (WTI) crude futures were at $71.62 a barrel, up 13 cents, or 0.2 per cent, from their last settlement.

Crude prices have received broad support from voluntary supply cuts led by OPEC aimed at tightening the market.

"Global inventories are approaching long-run averages, suggesting that the coordinated OPEC/non-OPEC supply cuts have been successful," said Jack Allardyce, oil and gas research analyst at Cantor Fitzgerald.

Beyond OPEC's cuts, strong demand as well as falling output from Venezuela and a US announcement earlier this month to renew sanctions against OPEC member Iran helped push Brent up by 20 per cent since the start of the year.

"The dual supply shortcomings from Iran and Venezuela continue to provide substantial support," said Stephen Innes, Head of Trading for Asia/Pacific at futures brokerage OANDA in Singapore.

With crude prices at levels not seen since late 2014, Allardyce warned the high fuel costs could start crimping consumption.

At $80 per barrel, Asia's thirst for oil costs the region a whopping $1 trillion a year, more than twice what it was in 2015/2016, the two years prior to the OPEC-cuts which started in 2017.

The crude oil price forward curve is in firm backwardation, a structure that suggests a tight market as prices for immediate delivery are higher than those for later dispatch.

Front-month Brent prices are now almost $1.80 per barrel more expensive than those for delivery in December.