Published: Wed, August 08, 2018
Economy | By

Oil rises as USA sanctions on Iran stir supply worries

Oil rises as USA sanctions on Iran stir supply worries

The new United States sanctions will likely slash oil supply.

U.S. President Donald Trump tweeted that the sanctions were "the most biting sanctions ever imposed".

USA sanctions on Iran's energy sector are set to be re-imposed after a 180-day "wind-down period" ending on November 4. Starting in July, South Korea is halting Iranian oil imports for the first time since 2012 amid pressure from the United States to discontinue purchases from Iran.

Many countries, including U.S. allies in Europe as well as China and India oppose the introduction of new sanctions, but the USA government said it wants as many countries as possible to stop buying Iranian oil.

Joe McMonigle, a senior energy analyst at Hedgeye Risk Management, told UPI in response to emailed questions that it was clear the Trump administration was serious with its threat to isolate Iran economically.

"It certainly is a reminder to everyone that the serious about sanctions, and it's doubtful they will grant waivers", said John Kilduff, partner at Again Capital Management in NY.

That would potentially isolate as much as a million barrels of oil per day at a time when the market has little room for supply-side shocks.

Oil prices rose on Tuesday after USA sanctions on Iranian goods went into effect, intensifying concerns that sanctions on Iranian oil, expected in November, could cause supply shortages.

Sweet Brent crude oil futures were at 74.08 dollars per barrel. U.S. West Texas Intermediate (WTI) crude futures CLc1 were up 29 cents at $69.30 a barrel, down from am earlier high of $69.83.

Markets should move on Iran for most of the trading day. Weekly data from the American Petroleum Institute for US inventories is due later on Tuesday at 4:30 p.m. EDT, followed by the EIA's report on Wednesday morning.

A build in supplies would have a negative impact on the price of oil.

Platts reported that an increase in US crude oil supplies is in part behind the drain in inventories.

"It is a reality check that this is happening and that Iran's oil exports will be hurt when the oil sanctions hit it in November", chief commodities analyst at Commerzbank Bjarne Schieldrop said.

Still, with Russian Federation, the United States and Saudi Arabia now all producing 10 million to 11 million bpd of crude, just three countries now meet around a third of global oil demand.

This is not about bombarding the market with oil and pushing the price into the $50s, it is about preparing the market and easing the transition, he said.

"The price may also be finding support from oil transport infrastructural problems in the USA", said Commerzbank analysts in a note".

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