NEW YORK (Reuters) – Oil prices rose to two-month highs on Monday, ending the strongest month of the year for crude futures, boosted in part by expectations of U.S. sanctions against Venezuela’s oil sector and as supply concerns have waned in recent weeks.
During the trading day, chatter centered around potential U.S. Treasury sanctions targeting the country’s oil sector in response to Venezuela’s Sunday election which Washington denounced as a “sham.”
That helped boost prices prior to settlement due to concern about possible limits on oil imports from Venezuela or exports of U.S. fuel to that country. After the close, however, the U.S. Treasury Department announced sanctions limited only to Venezuelan President Nicolas Maduro.
“As far as the oil market is concerned that’s a non-event,” said James Williams, president of energy consultant WTRG Economics in London, Arkansas. “It’s just eye candy as far as I can see.”
Benchmark Brent crude LCOc1 rose 0.3 percent to settle at $52.65. Brent earlier hit $52.92 a barrel, its highest since May 25. U.S. light crude oil CLc1 rose nearly 1 percent to settle $50.17 a barrel.
Some OPEC and non-OPEC members will meet on Aug. 7-8 in Abu Dhabi to assess how the group can increase compliance with production cuts that began on Jan. 1.
A Reuters survey on Monday indicated output from OPEC members rose, with June production revised up by 200,000 bpd.
In Europe, a production outage at Royal Dutch Shell Plc’s (RDSa.L) 404,000 barrel-per-day Pernis refinery in the Netherlands following a fire sent benchmark European diesel margins to their highest since November 2015 at $14.60 a barrel.
The Brent front-month spread LCOc1-LCOc2 rallied to the strongest in 15 months earlier in the session, ahead of the September contract’s expiry. The spread ended back in a contango of 7 cents per barrel, meaning prices were cheaper than the next month.
The strength in Brent prices pushed WTI-Brent spread WTCLc1-LCOc1 to the widest since March 28. The spread settled at a discount of $2.48 a barrel.
U.S. crude inventories have fallen by 10 percent from their March peaks to 483.4 million barrels. C-STK-T-EIA
Drilling for new U.S. production is slowing, with just 10 rigs added in July, the fewest since May 2016.
However, U.S. shale production is not rolling over, said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, who said producers may ramp up production now that oil has rallied.
“I think this rally may be somewhat limited,” he said.