The price of crude oil in the US jumped above $75 (£57) a barrel today amid war of words between US President Donald Trump and oil cartel OPEC and fears of production losses in Iran and Venezuela.
Prices for West Texas Intermediate Crude hit $75 a barrel today for the first time since 2014, before retreating to around $73 a barrel.
Senior oil and gas equity analyst at Macquarie Iain Reid said that price rises were driven by strong demand and restricted supply.
“The reasons why crude is reasonably strong at the moment is there is very good demand growth out there and over the last year-and-a-half there has been compliance with the reduced production by Opec and non-Opec members that has cut 1.8m barrels a day from the supply side of the equation,” he said.
Opec (Organisation of Petroleum Exporting Countries) has recently agreed to increase oil supplies.
On Saturday Trump tweeted that he had asked King Salman of Saudi Arabia to increase oil production by as much as 2m barrels, which he said that Salman had agreed to.
Just spoke to King Salman of Saudi Arabia and explained to him that, because of the turmoil & disfunction in Iran and Venezuela, I am asking that Saudi Arabia increase oil production, maybe up to 2,000,000 barrels, to make up the difference…Prices to high! He has agreed!
— Donald J. Trump (@realDonaldTrump) June 30, 2018
Ashley Kelty an oil & gas research analyst at Cantor Fitzgerald argued that the fluctuations in oil prices were largely down to the uncertainty cause by Trumps rhetoric.
“It's mostly to do with the volatility coming from the rhetoric between the US and Opec. It all kicked off at the weekend with Trump claiming the Saudis had agreed to an extra 2m barrels a day which is physically impossible, they just cant do that”, he said.
Kelty said that such an increase would take years to achieve, taking Saudi production beyond record heights hit in 2016.
Even with an increase in production by the likes of Saudi Arabia and Russia, oil supply is likely to stay largely static because of falling production in Venezuela and international sanctions on Iran.
“Venezuelan production has fallen off a cliff and there is no way they are going to arrest the decline so the actual impact of the Opec agreement a couple of weeks ago is effectively getting them back to the starting position, it doesnt really add an awful lot to the market when you take out Iran and Venezuela,” he said.
Reid said that he expected oil to stay around its current price, with a possible increase to $80 a barrel.
“We have an $80 per barrel price for oil in the medium term and we are pretty much at that level. Some people are speculating it could be at $100 with any major political shocks,” he said.
Kelty said: “I think it will trade in the $70 to $80 range but it will be very volatile.”
BP and Shell shares both closed up today after seeing strong spikes when the oil price was at its highest. BP's share price closed up 1.58 per cent and Shell's closed up 0.6 per cent.