Oil rises as renewed USA sanctions on Iran seen tightening supply

Virginia Carson
August 10, 2018

At 7:25 a.m. EDT on Thursday, WTI Crude was trading down 0.12 percent at $66.86, while Brent Crude was up 0.17 percent at $72.40, holding steady after a 3-percent plunge yesterday, when China and the United States traded a new round of tariffs and counter-tariffs on US$16 billion worth of each others' imports, with China slapping tariffs on 333 USA goods, including petroleum products.

It is not clear whether China, the biggest buyer of Iranian crude, will bow to USA pressure. The US government has said it wants as many countries as possible to stop buying Iranian oil. Crude oil will be exempt.

Net U.S. crude imports fell last week by 358,000 barrels per day.

Inventories at Cushing, Oklahoma, the NYMEX crude futures delivery and pricing point, tightened further, falling 590,000 barrels to 21.8 million barrels, the EIA data showed. A first set of United States sanctions snapped back into place earlier this week, but in November it will seek to choke off Iranian oil exports. There is the concern of global trade slowing down, but there's also a lot of geopolitical noise out there as well.

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are under pressure early Wednesday after China said it will retaliate against the latest round of U.S. tariffs on Chinese imports.

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Oil prices steadied on Wednesday despite relatively weak Chinese import data as the market was still supported by falling United States crude inventories and the introduction of sanctions against Iran.

Many energy analysts believe new sanctions will remove far less of Iran's barrels than the last time when about half its oil exports were erased from the market as a result of U.S. and European sanctions.

Syncrude Canada, one of the world's largest producers of synthetic crude oil from oil sands and the largest single source producer in Canada, has announced that due to a power outage, the production at its oil sands facility near Fort McMurray, Alberta was offline at least through July.

"I think the market will need to see the evidence gathering on the loss of Iranian barrels following the re-imposition of US sanctions before it moves up, and I expect it should become very apparent by the end of this month", Tchilinguirian said.

"We view it as very unlikely that the USA administration will be successful in reducing Iranian exports to zero", analysts at MUFG said in a note on Wednesday.

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"It certainly is a reminder to everyone that the U.S.is serious about sanctions, and it's doubtful they will grant waivers", said John Kilduff, partner at Again Capital Management in NY.

Meanwhile, U.S. crude production, which has climbed dramatically fuelled largely by increased output from shale formations, may now rise more slowly as prices drop, according to the U.S. Energy Information Administration's monthly report.

The U.S. crude oil production went down to 10.8 million barrels per day.

For the past week, crude imports averaged 7.9 million barrels a day, up by 182,000 compared with the previous week.

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