Oil hits two-month high on tighter US market, Venezuela sanctions risk

US crude inventories down 10% since late March, and production shows signs of slowdown

The price rises for both WTI and Brent are on track for sixth consecutive session of gains. Lucy Nicholson / Reuters

Oil prices hit a two-month high on Monday, lifted by a tightening US crude market and the threat of sanctions against OPEC-member Venezuela.

Brent crude futures, the international benchmark for oil prices, were at US$52.67 per barrel at 0247 GMT on Monday, up 15 cents or 0.3 per cent. Prices hit $52.76 per barrel earlier in the day, their highest since May 25.

US West Texas Intermediate (WTI) crude futures were up 16 cents, or 0.3 per cent, at $49.87 per barrel, the highest since June 30.

The price rises put both crude benchmarks on track for sixth consecutive session of gains.

Oil prices have risen around 10 per cent since the last meeting of leading members by OPEC and other major producers, including Russia, when the group discussed potential measures to further tighten oil markets.

"A combination of factors seems to be driving the newly found optimism. US inventories are showing massive drawdowns, Saudi Arabia seems intent on playing its role as the world's swing producer (and) impending sanctions on Venezuela by the US will almost certainly be oil price supportive," said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.

The United States is considering imposing sanctions on Venezuela's vital oil sector in response to Sunday's election of a constitutional super-body that Washington has denounced as a "sham" vote.

But traders said the biggest price supporter was currently a tightening US oil market.

"Strong increases in the price of oil ... (were) fuelled in large part by the substantial draw-downs in US inventories over the past several weeks," said William O'Loughlin, investment analyst at Australia's Rivkin Securities.

"A continuation of this trend could indicate the oil market is rebalancing thanks to the production cuts by OPEC and Russia," he added.

After rising by more than 10 per cent since mid-2016, US oil production dipped by 0.2 per cent to 9.41 million barrels per day (bpd) in the week to July 21.

US crude inventories have fallen by 10 per cent from their March peaks to 483.4 million barrels. <

Drilling for new US production is also slowing, with just 10 rigs added in July, the fewest since May 2016.

The tighter market was also visible in the price curve, which shows backwardation in the front end.

Backwardation is a market condition in which prices for immediate delivery of a product are higher than those later on.

Brent prices for delivery in September are currently around 35 cents above those for October.

*Reuters