Oil futures gained on Monday after OPEC sources said Saudi crude production unexpectedly fell in July, raising concerns about global oil supplies as the United States prepares to reinstate sanctions against major exporter Iran.
Brent crude futures rose 54 cents to settle at $73.75 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose 52 cents to settle at $69.01 a barrel.
Saudi Arabia pumped around 10.29 million barrels per day (bpd) of crude in July, two sources at the Organization of the Petroleum Exporting Countries said on Friday, down about 200,000 bpd from June.
That came despite a pledge by the Saudis and top producer Russia in June to raise output from July, with Saudi Arabia promising a “measurable” supply boost.
“Prices had dropped recently assuming that Saudi was going to continue to produce,” said Stewart Glickman, an energy equity analyst at CFRA Research in New York. “If the argument now is that maybe they can’t produce as much as everyone was hoping for, that puts some upward pressure on prices.”
Brent prices fell 6.5 percent in July, their steepest monthly drop since July 2016.
U.S. investment bank Jefferies said in a note that “the Saudi and Russian production surges appear to be more limited” than expected, adding that the imminent reinstatement of U.S. sanctions against Iran also fed bullish sentiment.
Washington is due to reinstate some sanctions against Iran that it suspended after a 2015 deal between world powers and Tehran that sought to curb Iran’s nuclear program.
Some of the sanctions resume on Tuesday. The United States also plans to re-introduce sanctions on Iranian oil in November, which could dent the OPEC member’s output.
Renewed sanctions are part of the Trump administration’s strategy to deny resources to the Iranian leadership.
Washington wants as many countries as possible to cut imports of Iranian oil to zero, a senior U.S. administration official said in a telephone press briefing.
But a senior official at Iran’s economy ministry said Tehran did not think the economic impact of the sanctions would be massive.
“Many countries, including Europeans, disagree with the U.S. sanctions and are willing to work with Iran,” said the official, who asked not to be named.
Most Iranian crude exports go to China and India, but roughly 20 percent go to Europe, where refiners have already cut their purchases.
Meanwhile, U.S. energy companies last week cut oil rigs for a second time in the past three weeks as the rate of growth has slowed over the past couple of months.