Signs that US sanctions on Iran are reducing oil supply push price up

London — Oil prices rose on Friday, supported by signs that US sanctions on Iran were already reducing global crude supply.

Benchmark Brent crude oil was up 60 US cents a barrel at $75.33 by 9.35am GMT. Brent was on track for gains of almost 5% this week. US light crude was 60c higher at $68.43, heading for a gain of 3.8% this week.

“Both crude markers are on track to end a steady run of weekly declines. This is largely due to a tightening fundamental outlook on the back of looming Iranian supply shortages,” said Stephen Brennock analyst at London brokerage PVM Oil Associates.

The US government re-imposed sanctions on Iran this month after withdrawing from a 2015 international nuclear deal, which Washington saw as inadequate for curbing Tehran’s activities in the Middle East and denying it the means to make an atomic bomb.

Tehran says it has no ambitions to make such a bomb.

Iran is the third-biggest producer in Opec supplying about 2.5-million barrels per day (bpd) of crude and condensate to markets in 2018, equivalent to about 2.5% of global consumption.

“Third-party reports indicate that Iranian tanker loadings are already down by about 700,000bpd in the first half of August relative to July, which, if it holds, will exceed most expectations,” US investment bank Jefferies said on Friday.

“We expect that by quarter four the market will be dealing with either undersupply, dwindling spare capacity — or both,” it added.

Energy consultancy FGE says it expected Iran’s crude and condensate exports to drop below one-million bpd by mid-2019.

Market sentiment was cautious, however, after talks between US and Chinese officials aimed at resolving an escalating trade dispute ended on Thursday with no major breakthrough. Instead, both countries activated another round of tariffs on $16bn worth of each other’s goods.

“Investors are likely to feel nervous as the two countries vow to step up the pressure,” ANZ bank said on Friday.

Economists say a prolonged trade war would reduce business activity in both the US and China, and stifle world economic growth.

Despite the escalating trade war, China’s Unipec will resume purchases of US crude oil in October, sources told Reuters on Friday, after a two-month halt due to the trade dispute between the world’s two largest economies.

Traders kept an eye on the North Sea, where workers on three oil and gas platforms plan to strike in September.

Reuters

Source: businesslive.co.za