Published: Wed, October 10, 2018
Economy | By

Rocked by Trump's Sanctions, Iranian Oil Exports Drops Further

Rocked by Trump's Sanctions, Iranian Oil Exports Drops Further

India will buy nine million barrels of Iranian oil in November, in a signal the world's third-biggest oil importer will continue purchasing crude from the Islamic republic despite United States sanctions coming into force on November 4.

This comes amid reports that the Trump administration will not completely cut off Iranian oil exports on November 4 - there will be a transition period.

At the same time, U.S. crude oil stocks are on the rise.

India is going to continue buying Iranian oil in November despite the USA sanctions, Reuters reported citing sources close to the Indian oil industry.

But Iran, OPEC's third-largest producer, has repeatedly said that its oil exports can not be reduced to zero because of high demand levels in the market and has blamed Trump for an oil price rally caused by imposing sanctions on Tehran.

The second potentially bearish factor is rumors that the Saudis are prepared to replace any potential shortfall from Iran.

Saudi Arabia said last week it plans to raise production in November from October output of 10.7 million barrels per day (bpd), indicating Riyadh will be boosting its supply to the highest ever level.

The U.S. oil drilling rig count fell for a third consecutive week, as rising costs and pipeline bottlenecks have hindered new drilling since June.

According to energy services firm Baker Hughes, drillers cut two oil rigs in the week to October 5, bringing the total count down to 861. The global benchmark hit a four-year high of $86.74 last week but slipped as low as $82.66 on Monday.

Industry and government data on US crude inventories will be delayed by one day this week because of a public holiday on Monday.

Many market observers believe the world crude oil market is now facing no significant shortage, but the fear of outages is what has lent a bullish tendency. "State's been pushing very hard on this, they deserve a lot of credit for their efforts, so let's see what they come up with before criticizing".

Besides blocking of banking channels from November, the absence of payment mechanism may pose a challenge to the transportation of the oil as Iranian crude is bought on a CIF basis and shipped on Iranian tankers. The first value zone for the December Brent futures contract is $81.83 to $80.68.

"Hurricane Michael is powering ahead towards the Gulf of Mexico but it now seems likely to miss the main production areas there". In the event, concerns over supply tightening will ease considerably. This is understandable given the change in the bullish narrative. The bulk of spare capacity is held by Saudi Arabia. This means that any supply disruption can send prices soaring again as well as Asia's strong demand.

Like this: