NEW YORKNEW YORK (Reuters) - Oil prices rose on Monday, with U.S. crude futures jumping more than 2 percent, as traders continued to focus on supply disruptions and a possible hit to crude output from U.S. sanctions on Iran.
October Brent crude futures LCOV8, the most actively traded contract, settled at $75.55 a barrel, up 79 cents. The September Brent contract, which expires on Tuesday, settled at $74.97, up 68 cents, or 0.9 percent. Volumes in an expiring contract tend to dwindle in the last few days before it goes off the board.
U.S. West Texas Intermediate crude futures (WTI) CLc1 rose $1.44, or 2.1 percent, to settle at $70.13 a barrel.
WTI rose on expectations that U.S. inventories fell last week and worries that an outage at a Syncrude facility in Canada will not be solved as soon as expected, traders said.
"We’re just getting tighter and tighter here in the U.S. in terms of supply, particularly in Cushing," said John Kilduff, partner at Again Capital Management in New York. "That's why you're seeing WTI rise."
Crude inventories at the Oklahoma, delivery point for WTI have been dwindling, in part due to the situation at the Syncrude facility that has reduced the flow of oil into the hub.
Stocks at the Cushing dropped to 23.7 million barrels, the lowest since November 2014 in the week to July 20. [EIA/S]
Energy information company Genscape, however, said that inventories at the Cushing rose almost 200,000 barrels, or nearly 1 percent, from Tuesday to Friday last week, according to traders.
Oil prices have rebounded from recent lows over the last two weeks, as looming sanctions on Iran have already started to curtail exports from that country. U.S. President Donald Trump said on Monday he would meet with Iran's President, Hassan Rouhani.
"The best-case scenario is that the U.S. provides meaningful sanction waivers in the run-up to the mid-term elections and Iran can get away with a loss of around 500-700,000 barrels per day of exports," PVM Oil Associates Tamas Varga said in a note.
The market held gains even after a Reuters survey showed the Organization of the Petroleum Exporting Countries increased production in July. [nL5N1UN3H4]
OPEC hiked production 70,000 barrels per day to 32.64 million bpd, a 2018 high. Further supply increases could offset production outages and pressure prices.
Prices remain buoyed by a tight supply outlook, with global inventories down from record highs in 2017 and U.S. inventories at three-year lows, said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut.
"If you take a step back and look at where global inventories and U.S. inventories are, you're seeing a tighter picture than where we were a year ago," McGillian said. "Overall, I think the market is in the process of stabilizing."
Saudi Arabia last week said it was suspending oil shipments through the Red Sea's Bab al-Mandeb strait, one of the world's most important tanker routes, after Yemen's Iran-aligned Houthis attacked two ships in the waterway.
"The ongoing concerns about the lack of supply coming out of the Bab al-Mandeb strait on top of continued disruption in Venezuela seems to be giving the market momentum, not to mention the potential loss of Iranian supply," said Phil Flynn, analyst at Price Futures Group in Chicago.
(Additional reporting by Amanda Cooper in London; Aaron Sheldrick in Tokyo; Editing by Marguerita Choy and David Gregorio)