Oil prices rose on Monday, supported by concerns that falling Iranian output will tighten markets once U.S. sanctions bite from November, but gains were limited by higher supply from OPEC and the United States.
Brent crude oil was up 37 cents at $78.01 a barrel by 2:54 p.m. EDT (1854 GMT). U.S. crude was 30 cents higher at $70.10.
The two benchmarks have risen strongly over the last two weeks with Brent gaining more than 10 percent on expectations that global supply will tighten later this year.
During the U.S. trading day the markets saw thin volumes due to the U.S. Labor Day Holiday.
The Saudi-led coalition fighting in Yemen said on Monday it had intercepted and destroyed a ballistic missile fired at the southern Saudi city of Jizan by the Iranian-aligned Houthis, who said separately they were targeting a Saudi Aramco facility.
There were no reports of damage by the coalition, in a tweet by Saudi-owned Al Arabiya TV, or the Houthis, in a tweet by their al-Masirah TV.
U.S. sanctions are already curbing exports from Iran.
“Exports from OPEC’s third-biggest producer are falling faster than expected and worse is to come ahead of a looming second wave of U.S. sanctions,” said Stephen Brennock, analyst at London brokerage PVM Oil Associates. “Fears of an impending supply crunch are gaining traction.”
Stephen Innes, head of trading for Asia-Pacific at brokerage OANDA, said Brent was “supported by the notion that U.S. sanctions on Iranian crude oil exports will eventually lead to constricted markets.”
Edward Bell, analyst at Emirates NBD bank in Dubai, agreed:
“Iranian production is already showing signs of decline, falling by 150,000 bpd last month ... (as) importers of Iranian barrels will already be moving away from taking shipments.”
But global oil markets are still fairly well supplied.
Production by the Organization of the Petroleum Exporting Countries rose 220,000 barrels per day (bpd) in August to a 2018 high of 32.79 million bpd, a Reuters survey showed.
Output was boosted by a recovery in Libyan production and as Iraq’s southern exports hit a record high.
U.S. drillers added oil rigs for the first time in three weeks, increasing the rig count by 2 to 862. The high rig count has helped lift U.S. crude production <C-OUT-T-EIA> by more than 30 percent since mid-2016 to 11 million bpd.
Meanwhile, trade disputes between the United States and other major economies, including China and the European Union, are expected to hurt oil demand if they are not settled soon.
China’s manufacturing activity grew at the slowest pace in more than a year in August, with export orders shrinking for a fifth month, a private survey showed on Monday.
OANDA’s Innes said it was too early to say whether economic slowdown would put a serious dent in oil prices.
“It isn’t at all clear that such type of economic headwinds will topple oil prices,” Innes said.