Oil prices soared midweek as a slew of bullish events including toughening US stance against Iranian exports led to strong buying.

The week had begun on a negative note with prices falling as Saudi Arabia pledged to use its spare capacity of 2 million barrels per day to help meet supply shortages.

However, the mood soured on Tuesday as the US served notice on buyers of Iranian crude to end their purchases by 4 November. Falling Canadian exports and the seizure of Libya’s main export terminals added to the misery.

International oil markets were further caught off-guard with prices advancing towards a 42-month high amid plunging US crude stockpiles following the release of data by the Energy Information Administration (EIA).

The EIA data showed crude inventories declining by almost 10 million barrels last week. Refineries boosted oil processing and exports soared to a record. Oil stored at the key pipeline hub in Cushing, Oklahoma, in the US shrank for a sixth straight week.

Brent crude for August delivery was selling at just over $78 per barrel in late London trading compared to $75.58 per barrel the same time last week. US West Texas Intermediate crude was being offered at just a touch below $73 per barrel in early New York trading, a massive premium to the level of $66 per barrel at the same time last week. Most of the market momentum followed a statement from the US State Department urging major buyers of Iranian crude to completely stop trading with the Islamic Republic by the November deadline set by US President Donald Trump when he tore up the 2015 Iranian nuclear deal in May.

"We will certainly be requesting that their oil imports go to zero, without question," a senior State Department official said on Tuesday during a background briefing with reporters.

Those refusing to heed the US ultimatum risk being shut out of the US banking system.

Support also came from falling Canadian exports that have helped drain supplies of heavy crude across North America, thus contributing to a major draw in US crude inventories, analysts said.

Also keeping markets on edge was the risk of serious disruption to supplies from Africa. A power struggle between rival governments in Libya left it unclear who will handle the country’s oil exports.

A renegade general has seized major ports and pledged to hand over proceeds of exports from the North African state to a rebel administration in the east.

Production woes are also continuing in Venezuela, further heightening fears of future supply shortages.

Trying to make up for disrupted supply, Opec pledged to increase supplies by about 1 million bpd after their 22 June scheduled in Vienna.

Meanwhile, Saudi Arabia is planning to pump a record 11 million bpd in July, up from 10.8 million bpd in June as part of efforts by the kingdom to help cool off the market. Trump has appealed to Saudi Arabia to boost output to help make up for expected losses from Iran.

Despite widespread opposition in Europe and Asia to the re-imposition of US sanctions on Iran, analysts expect a significant reduction in exports from Opec’s third biggest producer, perhaps in excess of 1 million bpd.

Iran produced 3.8 million bpd in May but its oil sales are already beginning to feel the impact of the potential US sanctions as leading buyers such as Shell and Total are reducing their purchases.

Weekly

Iran row sparks buying spree