Oil jumps as effects of coming Iran sanctions are already being felt

Singapore — Oil prices rose 1% on Thursday as investors focused on the prospect of tighter markets due to US sanctions against major crude exporter Iran, set to take effect in November.

Front-month Brent crude futures were at $82.17 a barrel at 1.33am GMT, up by 83c or 1% from their last close, just off Tuesday’s four-year highs.

US West Texas Intermediate (WTI) crude futures were at $72.41 a barrel, up 84c or 1.2% from their last settlement.

Traders say oil markets are tightening ahead of Washington’s planned sanctions against Iran’s petroleum industry from November 4.

“We view that crude market risks are heavily skewed to the upside and while we are not explicitly forecasting Brent to rise to $100 a barrel, we see material risks of this coming to fruition,” Japanese bank Mitsubishi UFJ Financial Group said in a note to clients.

At its 2018 peak, Iran exported about 3-million barrels a day of crude oil, equivalent to 3% of global consumption.

Shipping data shows Iranian exports in September fell to about 2-million barrels a day as buyers around the world bow to US pressure and cut imports.

The Organisation of the Petroleum Exporting Countries (Opec) has little spare capacity to make up for an expected shortfall in Iranian exports.

Spike in Oman 

Reflecting expectations of lower supply from the Middle East, Oman crude futures on the Dubai Mercantile Exchange touched their highest in four years on Wednesday, briefly jumping above $90 a barrel.

“Oil prices remain in the bulls’ domain amid concern that US sanctions on Iranian crude oil exports will result in much tighter physical market conditions once they take effect in November,” said Stephen Innes, head of Asia-Pacific trading at futures brokerage Oanda in Singapore.

“Markets could still be underestimating the supply crunch from Iran sanctions,” he said.

While global oil markets tighten, supply in the US is ample, thanks to rising output.

US crude production hit a record 11.1-million barrels a day in the week ending September 21, according to data from the Energy Information Administration (EIA).

That is an increase of almost a third since mid-2016.

Commercial crude stocks rose by 1.85-million barrels, to 395.99-million barrels, the EIA data showed.

Reuters

Source: businesslive.co.za