Oil adds another dollar as Iran sanctions loom

A US Navy soldier onboard Mark VI Patrol Boat stands guard as an oil tanker makes its way towards Bahrain port, during an exercise. (Reuters)
Updated 11 September 2018
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Oil adds another dollar as Iran sanctions loom

  • US sanctions to target Iran oil exports from November
  • Washington wants other producers to replace falling Iran exports

LONDON: Oil prices rose about $1 a barrel on Tuesday as US sanctions squeezed Iranian crude exports, tightening global supply despite efforts by Washington to get other producers to increase output.
Brent crude futures rose $1.13 to $78.50 a barrel while WTI crude gained $1.10 to $68.64 a barrel in mid afternoon trade in London.
“The impact of the US sanctions on Iran is firmly being felt,” said Tamas Varga, analyst at London brokerage PVM Oil. “The biggest worry is obviously the amount of Iranian oil that is disappearing from the market.”
Washington has told its allies to reduce imports of Iranian oil and several Asian buyers, including South Korea, Japan and India appear to be falling in line.
But the US government does not want to push up oil prices, which could depress economic activity or even trigger a slowdown in global growth.
US Energy Secretary Rick Perry met Saudi Energy Minister Khalid Al-Falih on Monday in Washington, as the Trump administration encourages big oil-producing countries to keep output high. Perry will meet with Russian Energy Minister Alexander Novak on Thursday in Moscow.
Russia, the US and Saudi Arabia are the world’s three biggest oil producers by far, meeting around a third of the world’s almost 100 million barrels per day (bpd) of daily crude consumption.
Their combined output has risen by 3.8 million bpd since September 2014, more than the peak output Iran has managed over the last three years.
Russian Energy Minister Alexander Novak said on Tuesday that Russia and a group of producers around the Middle East which dominate OPEC may sign a new long-term cooperation deal at the beginning of December, the TASS news agency reported. Novak did not provide details.
A group of OPEC and non-OPEC producers have been voluntarily withholding supplies since January 2017 to tighten markets, but with crude prices up by more than 40 percent since then and markets significantly tighter, there has been pressure on producers to raise output.
As Middle East markets tighten, Asian buyers are seeking alternative supplies, with South Korean and Japanese imports of US crude hitting a record in September.
US oil producers are seeking new buyers for crude they used to sell to China before orders slowed because of the trade disputes between Washington and Beijing.
This is one reason that the discount for US crude versus Brent has widened to around $10 per barrel, the biggest since June, traders said.


Volvo quits Iran as US sanctions pressure mounts

Updated 19 min 40 sec ago
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Volvo quits Iran as US sanctions pressure mounts

  • Volvo cannot get paid in Iran due to US sanctions
  • Plans were for at least 5,000 trucks to be assembled in Iran Saipa Diesel says zero Volvo trucks assembled since May

STOCKHOLM, Sweden: Swedish truck maker AB Volvo has stopped assembling trucks in Iran because US sanctions are preventing it from being paid, a spokesman for the company said on Monday.
The sanctions against Iran, reimposed on Aug. 6 by US President Donald Trump after his decision to pull out of a nuclear deal with Tehran, have forced companies across Europe to reconsider their investments there.
Volvo spokesman Fredrik Ivarsson said the trucks group could no longer get paid for any parts it shipped and had therefore decided not to operate in Iran in another blow to the country’s car industry, which unlike the energy and banking sectors, had managed to sign contracts with top European firms.
“With all these sanctions and everything that the United States put (in place) ... the bank system doesn’t work in Iran. We can’t get paid ... So for now we don’t have any business (in Iran),” Ivarsson told Reuters by telephone.
Before the sanctions were reimposed, Volvo had expressed an ambition for Iran to become its main export hub for the Gulf region and North Africa markets.
The European Union has implemented a law to shield its companies, but the sanctions have deterred banks from doing business with Iranian firms as Washington can cut any that facilitate such transactions off from the US financial system.
Volvo was working with Saipa Diesel, part of Iran’s second-largest automaker SAIPA, which was assembling the Swedish firm’s heavy-duty trucks from kits shipped to Iran.
Ivarsson said Volvo had no active orders in Iran as of Monday.
A commercial department manager at Saipa Diesel confirmed that sanctions had prompted Volvo Trucks to terminate their partnership agreement.
“They have decided that due to the sanction on Iran, from (May) they couldn’t cooperate with us. We had some renovation planned in Iran for a new plant but they refused to work with us,” said the manager, who declined to be identified.
More than 3,500 Volvo trucks had been assembled by Saipa Diesel in the year to May, but none had been assembled in this financial year although the original deal was for at least 5,000 trucks, the manager told Reuters.
Swedish truckmaker Scania, which is owned by Volkswagen , said it had canceled all orders that it could not deliver by mid-August due to sanctions, while French carmaker PSA Group began to suspend its joint venture activities in Iran in June.
Germany’s Daimler has said it is closely monitoring any further developments, while carmaker Volkswagen has rejected a report that suggested it had decided against doing business in Iran.