Brent crude near 4-year high as Washington’s Iran sanctions loom

The Organization of the Petroleum Exporting Countries, of which Iran is a member, has struggled to replace export falls from Iran, according to a Reuters survey. (Reuters)
Updated 02 October 2018
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Brent crude near 4-year high as Washington’s Iran sanctions loom

  • Brent has risen by around 20 percent from the most recent lows in August
  • ‘Oil prices continue to climb, supported by the nearing Iran embargo and related supply concerns’

SINGAPORE: Oil markets were firm on Tuesday, with Brent crude prices holding near four-year highs reached the previous day as markets adjust to the prospect of tighter supply once the US sanctions against Iran kick in next month.
International benchmark Brent crude oil futures were at $85.02 per barrel at 0255 GMT, up 4 cents from their last close, and not far off the $85.45 peak reached in the previous session, the highest since November 2014.
Brent has risen by around 20 percent from the most recent lows in August.
US West Texas Intermediate (WTI) crude futures were up 24 cents, or 0.3 percent, at $75.54 a barrel.
WTI is up by about 17 percent since mid-August.
Sentiment was lifted by a last-gasp deal to salvage NAFTA as a trilateral pact between the United States, Mexico and Canada, rescuing a $1.2 trillion a year open-trade zone that had been about to collapse.
More fundamentally, oil markets have been pushed up by looming US sanctions against Iran’s oil industry, which at its most recent peak this year supplied almost 3 percent of the world’s almost 100 million barrels of daily consumption.
Trade data in Refinitiv Eikon showed Iran’s seaborne exports in September were just 1.9 million barrels per day, the lowest level since mid-2016.
“Oil prices continue to climb, supported by the nearing Iran embargo and related supply concerns,” said Norbert Ruecker, head of commodity research at Swiss bank Julius Baer.
“The supply situation looks fragile indeed, as any additional shortfall such as a deterioration of the situation in Venezuela would tighten oil supplies.”
HSBC said in its fourth quarter Global Economics outlook that “our oil analysts believe there is now a growing risk it (crude) could touch $100 per barrel.”
Washington’s sanctions are set to start on Nov. 4, and analysts say there may not be enough spare production capacity in the short-term to meet demand, potentially requiring large storage drawdowns.
“The camp of believers that $100 oil could be reached continues to expand, with spare capacity concerns continuing to grow,” said Brian Kessens, managing director at investment services firm Tortoise.
The Organization of the Petroleum Exporting Countries (OPEC), of which Iran is a member, has struggled to replace export falls from Iran, according to a Reuters survey published on Monday.
With crude prices soaring and many currencies in emerging markets, including India’s rupee and Indonesia’s rupiah declining, analysts warn that economic growth may be eroded.
“US (fiscal) tightening, higher oil prices and ongoing trade frictions are all taking their taking their toll on the growth outlook,” HSBC said.


Oil prices near 2019 highs after US ends all Iran sanction exemptions

Updated 23 April 2019
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Oil prices near 2019 highs after US ends all Iran sanction exemptions

  • Iran’s main oil buyers initially received sanction exemptions
  • US reiterates its goal to cut Iran oil exports to zero

SINGAPORE: Oil prices were near 2019 highs on Tuesday after Washington announced all Iran sanction waivers would end by May, pressuring importers to stop buying from Tehran.
Brent crude futures were at $74.40 per barrel at 0239 GMT, up 0.5 percent from their last close and not far off a 2019 peak of $74.52 reached on Monday.
US West Texas Intermediate (WTI) crude futures hit their highest level since October 2018 at $65.95 per barrel before edging back to $65.89 by 0239 GMT, which was still up 0.5 percent from their last settlement.
The United States on Monday demanded that buyers of Iranian oil stop purchases by May 1 or face sanctions, ending six months of waivers which allowed Iran’s eight biggest buyers, most of them in Asia, to continue importing limited volumes.
Before the reimposition of sanctions last year, Iran was the fourth-largest producer among the Organization of the Petroleum Exporting Countries (OPEC) at almost 3 million barrels per day (bpd), but April exports have shrunk well below 1 million bpd, according to ship tracking and analyst data in Refinitiv.
Barclay’s bank said in a note following the announcement that the decision took many market participants by surprise and that the move would “lead to a significant tightening of oil markets.”
The British bank added that Washington’s target to cut Iran oil exports to zero posed a “material upside risk to our current $70 per barrel average price forecast for Brent this year, compared with the year-to-date average of $65 per barrel.”
ANZ bank said in a note on Tuesday that “the decision is likely to worsen the ongoing supply woes being felt with Venezuelan sanctions, the OPEC supply cut, and intensifying conflict in Libya.”
The move to tighten Iran sanctions comes amid other sanctions Washington has placed on Venezuela’s oil exports and also as producer club OPEC has led supply cuts since the start of the year aimed at tightening global oil markets and propping up crude prices.
Ellen Wald, non-resident senior fellow at the Global Energy Center of the Atlantic Council, said the United States “seem to expect” Saudi Arabia and the United Arab Emirates to replace the Iranian oil, but she added “that this is not necessarily the way Saudi Arabia sees it.”
Saudi Arabia is the world’s biggest exporter of crude oil and OPEC’s de-facto leader. The group is set to meet in June to discuss its output policy.
“Should OPEC decide to end their supply cut program going into the second half of the year, this could limit oil’s upside in the coming months,” said Lukman Otunuga, analyst at futures brokerage FXTM.
Meanwhile, the Atlantic Council said the US move would hurt Iranian citizens.
“We’re going to see their currency collapse more, more unemployment, more inflation,” said Barbara Slavin, director for the Future of Iran Initiative at the Atlantic Council, adding that the US sanctions were “not going to bring Iran back to the (nuclear) negotiating table.”