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Risk factor drives oil prices sharply higher

As tensions in the Middle East build, the U.S. president is facing scrutiny from members of his own party.

By Daniel J. Graeber
Concerns about escalating geopolitical tensions helped drive the price of crude oil up more than 1 percent in early Tuesday trading. File photo by Monika Graff/UPI
Concerns about escalating geopolitical tensions helped drive the price of crude oil up more than 1 percent in early Tuesday trading. File photo by Monika Graff/UPI | License Photo

March 20 (UPI) -- With Iran on the radar, a risk premium was apparent in the price of oil early Tuesday as the main benchmarks jumped more than 1 percent.

Crude oil prices were relatively subdued in Monday trading as U.S. crude oil production trends balanced the effort from the Organization of Petroleum Exporting Countries to balance an oversupplied market with output caps.

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Late Monday, the U.S. Treasury Department increased the economic pressure on OPEC-member Venezuela by targeting a digital currency used by Venezuelan President Nicolas Maduro to try to maneuver around existing sanctions.

On Tuesday, U.S. President Donald Trump is scheduled to meet with Saudi Crown Prince Mohammed Bin Salman, just after the monarch minced few words in expressing disdain for Iran. In a Cabinet shakeup, President Trump recently appointed CIA Director Mike Pompeo to be his next secretary of state, choosing a more hawkish voice on Iran to be his top diplomat.

Meanwhile, U.S. Senate leaders, some of which are from his own party, are sparring with the Trump administration over U.S. military support for Saudi Arabian operations in Yemen. Trump, meanwhile, has faced criticism for weekend comments on Robert Mueller, who's leading an investigation into Russian meddling in the 2016 election.

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Geopolitical tensions were driving the price of crude oil early Tuesday. The price for Brent crude oil was up 1.8 percent as of 9:23 a.m. EST to $67.26 per barrel. West Texas Intermediate, the U.S. benchmark for the price of oil, was up 1.9 percent to $63.30 per barrel

Giovanni Staunovo, a commodity analyst for UBS, told UPI that risk was adding to clear signs of a positive opening to the Tuesday session. In a separate research note, UBS said it was pessimistic about the price of oil because of increased inventories.

"We maintain a negative view on oil prices due to likely further near-term buildups in oil inventories, targeting Brent to fall to $61 per barrel in three months," the emailed note read.

A survey of market analysts by S&P Global Platts revealed expectations of a build in U.S. crude oil inventories of 2.6 million barrels last week. Gasoline stockpiles, meanwhile, are expected to decline.

Geoffrey Craig said in comments emailed to UPI that market sentiment may be shifting, but the gap between supply and demand had clearly tightened.

"The builds have been smaller than in years past, allowing for the surplus to the five-year average to decline," he said. "Crude stocks have increased six of the last seven weeks, in line with seasonal trends, though the size of these builds has been smaller than usual."

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