Oil prices rose about 1% on Tuesday after US sanctions on Iranian goods went into effect, intensifying concerns that sanctions on Iranian oil, expected in November, could cause supply shortages.Brent crude oil futures rose 89 cents to $74.64 per barrel by 10:18 am EDT and US West Texas Intermediate (WTI) crude futures were up 52 cents at $69.53 a barrel. The first US sanctions against Opec member Iran officially came into effect at 12:01 a.m. EDT. These sanctions did not include Iran’s oil exports. The country exported almost 3 million barrels per day (bpd) of crude in July.
The reimposed sanctions target Iran’s US dollar purchases, metals trading, coal, industrial software and its auto sector. US sanctions on Iran’s energy sector are set to be re-imposed after a 180-day “wind-down period” ending on November 4. “It is a reality check that this is happening and that Iran’s oil exports will be hurt when the oil sanctions hit it in November,” chief commodities analyst at Commerzbank Bjarne Schieldrop said. US President Donald Trump tweeted that the sanctions were “the most biting sanctions ever imposed”. “Anyone doing business with Iran will NOT be doing business with the United States,” he added.
Many European countries, China and India, oppose the sanctions, but the US government said it wants as many countries as possible to stop buying Iranian oil. “The market continues to price in geopolitical risk from the reimposition of sanctions by the US on Iran,” said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut. “The reports that Saudi Arabia’s production actually dropped in July continue to provide support for the market.” Saudi Arabia’s crude production dropped about 200,000 bpd last month, two sources at the Organisation of the Petroleum Exporting Countries said on Friday, despite a pledge by the Saudis and top producer Russia to raise output from July, with Saudi Arabia promising a “measurable” supply boost.
Also supporting prices were a weakened dollar, McGillian said.The dollar index was trading 0.2% lower. A weak dollar can lift the price of commodities, like oil, that are priced using the currency. US crude stockpiles were also expected to have dropped last week. Data from the American Petroleum Institute for US inventories is due later on Tuesday at 4:30 p.m. EDT, followed by the government’s report on Wednesday morning.
Heat impacts oil
Analysts also warned that a global heatwave could affect oil demand. Much of the northern hemisphere has been gripped by extreme heat this summer, pushing up demand for industrial and residential cooling. This mostly affects demand for power fuels such as thermal coal and natural gas. “With global demand remaining healthy and the global heatwave increasing oil demand, I think prices will remain well-supported in the near term,” Hussein Sayed, chief market strategist at FXTM, said.
Sources and photo-credits: Reuters, Gulf Times