Crucial period for oil as Iran's exports shrink

Muriel Colon
September 20, 2018

Oil futures rose on Wednesday, with Brent reaching $80 a barrel, after a larger-than-expected drop in USA crude inventories and as US sanctions on Iran added to concerns over global oil supply.

Gasoline futures jumped 5.5 cents to settle at $2.0142 a gallon on the New York Mercantile Exchange.

Brent Crude for November settlement advanced $1.69 to settle at $79.06 on the ICE Futures Europe exchange. Brent crude, the global benchmark, fell $1.56, or 2%, to $78.18 a barrel to end a four-session winning streak.

Russia, the United States and Saudi Arabia are the world's three biggest oil producers by far, meeting around a third of the world's nearly 100 million barrels per day of daily crude consumption.

Iranian production has already fallen to the lowest since July 2016, at 3.63 million barrels a day, as buyers retreat ahead of US sanctions that come into force on November 4.

But with the crisis in Venezuela showing no sign of abating, and with new USA sanctions on Iran's oil industry set to come into force on November 4, other producers may have to ramp up production even further if they want to limit the impact on the market.

"While Iranian exports have fallen by almost 500,000 barrels per day since May, shipments from Iraq and Saudi Arabia have risen by 200,000 barrels per day and 60,000 barrels per day respectively", the IEA added.

"Iran is increasingly becoming the preoccupation of the crude market", said consultants JBC Energy.

US crude oil production fell by 100,000 bpd to 10.9 million bpd as the industry faces pipeline capacity constraints.

Amrita Sen, chief oil analyst at Energy Aspects, expects Iran's exports to drop by between 1.5 million to 1.7 million bpd from the 2017 average.

Russian energy minister Alexander Novak said global oil markets were fragile due to geopolitical risks and supply disruptions. But Iran has reported stable and unchanged production figures for the last three months of 3.8 Mmbpd.

Opec and its allies will meet in Algiers this month to assess global oil markets after having agreed to increase output at their last meeting in June. As Florence moves closer to the southeastern coast of the US, the storm appears likely to strengthen, forecasters said.

Prices slipped again after U.S. President Donald Trump said in a tweet that the United States was under no pressure to make a trade deal with China, Yawger said.

However, the dips could be short-lived as Hurricane Florence is expected to hit US East Coast on Friday, adding to supply concerns associated with the looming sanctions on Iran.

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