Oil holds near $ 80, supply concern expected to underpin prices

LONDON (Reuters): Oil steadied on Wednesday, as concerns that producers may fail to cover a shortfall in supply once US sanctions on Iran come into force outweighed an increase in US inventories.

Brent crude futures were up 2 cents at $79.05 a barrel by 0854 GMT, having gained 1.3% on Tuesday following media reports that Saudi Arabia, the world’s largest oil exporter, was comfortable with prices above $80.

US crude futures were up 15 cents at $70.00, after gaining 1.4% the day before.

Data from the InterContinental Exchange shows open interest in calls that give the owner the right to buy Brent futures at $80 and $85 by next week grew by nearly 45% on Monday and Tuesday to an equivalent of 54 million barrels of oil.

Reuters reported on 5 Sept. that Saudi Arabia wants oil to stay between $70 and $80 a barrel to keep a balance between maximising revenue and keeping a lid on prices until US congressional elections.

The Organization of the Petroleum Exporting Countries and other producers including Russia meet on 23 Sept. in Algeria to discuss how to allocate supply increases within their quota framework to offset the loss of Iranian supply.

US sanctions affecting Iran’s oil exports come into force on 4 November. Although many buyers have scaled back purchases, it is unclear how easily other producers can compensate for any lost supply.

Traders took the Saudi comments “as a sign that they (Saudi Arabia) won’t be aggressively responding to the rise in prices with supply increases”, ANZ bank said in a note.

Concern over supply overshadowed a surprise increase in US oil inventories.

US crude stockpiles rose by 1.2 million barrels to 397.1 million in the week to 14 September, the American Petroleum Institute said. 

Official inventory data from the US Energy Information Administration will be released on Wednesday.