Oil edges up on Iran sanctions, but trade disputes dent demand outlook

Muriel Colon
August 10, 2018

"This will provide a direct boost to GDP growth via higher oil production, which we have already incorporated into our forecasts".

Investor concern that the trade spat will limit energy demand growth overshadowed Energy Information Administration data released Wednesday that showed USA crude inventories fell the second time in three weeks.

"The US decision to pull out of the Joint Comprehensive Plan of Action has been known since May, so the market has had time to price in reduced Iranian output - probably of about one million barrel per day (bpd) - into oil prices", analysts at Capital Economics said.

But U.S. bank JPMorgan said a warmer-than-usual fourth quarter could stem from a potential El Niño weather pattern that "can cause droughts, flooding and other natural disasters across the globe, including heatwaves in the U.S. that affect commodities".

An Iranian newspaper reported that Foreign Minister Mohammad Javad Zarif said a USA plan to reduce Iran's oil exports to zero will not succeed.

"Of course, such decisions being taken by the USA side are absolutely unfriendly and can hardly be associated with the. constructive atmosphere achieved at the latest meeting of the two presidents", he was quoted by Russian news agency Tass as saying.

Front-month Brent crude oil futures LCOc1 were down 38 cents on the day at $74.27 a barrel by 1227 GMT, while US crude futures CLc1 were down 67 cents at $68.50 a barrel. West Texas Intermediate, the USA benchmark for the price of oil, was up 0.06 percent to $66.89 per barrel.

Last week, a news report said Chinese officials has rejected United States requests to cut imports of Iranian oil but added that China's imports might not rise further than current levels.

"Crude oil prices rose as the reality of USA sanctions on Iran weighed on sentiment". All countries must stop importing Iranian oil by then, the State Department said in June, or face sanctions.

Official US fuel storage data is due to be released later on Wednesday by the Energy Information Administration (EIA).

Meanwhile, stockpiles of gasoline and distillates, which include diesel and heating oil, rose more than expected. Financial markets settled down Wednesday following the previous day's big moves when an easing of concerns over an imminent USA -led military strike on Syria sent stocks sharply higher and oil prices down.

Iran is OPEC's third-largest producer, with output at around 4 million barrels per day (bpd) or 4 percent of global supply. However, lingering concerns over the sanctions on Iran and falling USA inventories should be supportive over the near-term. Saudi Arabia was thought to pump about 10.8 mmbbl or 11 mmbbl per day, said the source. The impact on the Iranian economy is expected to be harsh and the restrictions on oil and gas exports are expected to be harsher still.

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