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Oil prices rise on geopolitical worries, shrugs off US build
[NEW YORK] Oil prices rose on Wednesday despite data showing rising US inventories, holding within sight of three-year highs reached the previous day on geopolitical tensions including the prospect of fresh sanctions on Iran.
French President Emmanuel Macron forcefully challenged many of the US president's policies during a visit to Washington, saying an international nuclear deal with Iran, which President Donald Trump has harshly criticised, was not perfect but must remain in place until a replacement is forged.
Mr Trump will decide by May 12 whether to restore US sanctions on Tehran, which could be a first step to ending the deal.
The market was also supported by concerns around oil output from Venezuela. US oil major Chevron Corp has evacuated executives from Venezuela after two of its workers were imprisoned over a contract dispute with state-owned oil company PDVSA, according to four sources familiar with the matter.
"The geopolitical risk in the market has a pretty high premium," said Gene McGillian, vice-president of research at Tradition Energy. "Even with this week's Department of Energy numbers it hasn't shaken any of the confidence that the global supply and demand balance continue to tighten."
Brent crude settled 14 cents higher at US$74.00 a barrel, below the November 2014 intraday high of US$75.47 reached on Tuesday.
US crude futures ended up 35 cents at US$68.05 a barrel.
The market rebounded quickly from a dip after bearish U.S. inventory data because the build was not as large as it could have been, given the jump in exports, Mr McGillian said.
Crude inventories rose 2.2 million barrels last week, compared with expectations for a 2 million-barrel draw. Crude stocks at the Cushing, Oklahoma, delivery hub rose 459,000 barrels, EIA said.
A rise in US government borrowing costs to their highest since 2013 this week has tempered some investor appetite for risk, but analysts said Brent crude futures, the global benchmark, may yet rise toward new 2018 peaks above US$75 a barrel.
Supplier cutbacks, steady demand growth, geopolitical tensions and a favourable structure in the futures market have attracted record investment in oil this year.
Money managers hold record positions in Brent crude futures and options, lured by the hefty premium of the front-month June contract over subsequent months that makes it profitable to invest in crude over the longer term.
"The prospect of a downside correction in prices is lost on the speculative fraternity. In fact, financial players have rarely felt more optimistic. Bets on rising crude prices are close to a near-record high," PVM Oil Associates strategist Stephen Brennock said.
"However, given the already vast holdings of long positions in oil, there are doubts over the scope for further inflows."
The forward curve for Brent is now above US$70 until the end of 2018, and prices are above US$60 through 2020.
But the rise in US Treasury yields above 3 per cent has driven the dollar to three-month highs, making oil more expensive for buyers using other currencies. This might eventually pressure crude prices, even though oil and the dollar have moved in tandem for a few weeks.