Crude prices up on Iran sanctions, hazy outlook

Gold gains as dollar softens

LONDON, Oct 6, (RTRS): Oil prices steadied just below fouryear highs on Friday as world fuel markets tightened ahead of a new round of US sanctions on Iranian oil exports due to be imposed in November.

Benchmark Brent crude oil was down 5 cents a barrel at $84.53 by 1230 GMT. On Thursday, Brent fell by $1.34 a barrel or 1.6 percent, but the contract remained on course for a gain of around 2 percent for the week.

US light crude was up 25 cents at $74.58, a gain of more than 1.5 percent since last Friday.

“The market mood is exceptionally bullish, with fears growing that the US demands for an Iran oil embargo could cause a significant supply shortfall,” said Norbert Rucker, head of macro and commodity research at Julius Baer.

Both benchmarks retreated on Thursday following a rise in US oil inventories and after Saudi Arabia and Russia said they would raise output to at least partly make up for expected disruptions from Iran, OPEC’s third-largest producer.

But the pull-back did little to dent a 15-20 percent rise in oil prices since mid-August, which has pushed them to their highest since 2014.

Washington wants governments and companies around the world to stop buying Iranian oil from Nov 4 to put pressure on Tehran to renegotiate a nuclear deal.

Exports

Many analysts say they expect Iranian exports to drop by around 1 million barrels per day (bpd).

“Iranian exports could fall below 1 million bpd in November,” US bank Jefferies said. “It now appears that only China and Turkey may be willing to risk US retaliation by transacting with Iran.”

The investment bank said there was enough oil to meet demand, but “global spare capacity is dwindling to the lowest level that we can document”.

Speculators have accumulated bullish long positions, betting on a further rise in prices, amounting to almost 1.2 billion barrels of oil.

But Goldman Sachs says the uptrend may not last.

“While upside price risks will prevail for now, fundamental data outside of Iran has not turned bullish in our view,” Goldman said in a note to clients.

“We expect fundamentals to gradually become binding by early 2019 as new spare capacity comes online... pointing to the global market eventually returning into a modest surplus in early 2019.”

Gold rose slightly on Friday as the dollar softened after data showed US job growth slowed in September, easing concerns about a large run-up in inflation.

Spot gold was half a percent higher at $1,204.75 an ounce at 1416 GMT. The metal has gained 0.9 percent so far this week and is on track to mark its biggest weekly gain in six.

US gold futures were up 0.5 percent at $1,207.50 an ounce.

“The weaker-than-expected jobs data is supporting the overall current mood but the numbers were not ‘disappointing enough’ to trigger fresh buying,” said Heraeus precious metals trader Alexander Zumpfe.

“However, the data helped gold to establish itself above the pivotal $1,200 mark and I wouldn’t rule out a test of this week’s high at $1,208.”

Jobs

US nonfarm payrolls increased by 134,000 jobs last month, the fewest in a year, as the retail and leisure and hospitality sectors shed employment, something the Labor Department said could have been caused by Hurricane Florence.

However, the unemployment rate fell to near a 49-year low of 3.7 percent, pointing to a further tightening in labour market conditions.

Despite this week’s gains, gold prices have fallen more than 12 percent from a peak in April largely due to strength in the dollar, which has benefited from a vibrant US economy, rising US interest rates and fears of a global trade war.

Meanwhile, world markets steadied, as a four-year high in oil prices and the biggest weekly jump in Treasury yields since February left investors wondering where to go next.

Rising US government bond yields typically weigh on precious metals, as they make Treasuries attractive to investors seeking assets that earn a return as opposed to gold, which earns nothing and costs money to store and insure.

“The labour market report is another hint that the Fed is going for a rate hike in December and further into 2019,” said Peter Fertig, analyst at Quantitative Commodity Research.

“However, the rising yields also have a negative impact on stock markets and some investors might switch funds from equities.”

Among other precious metals, spot silver rose 0.3 percent to $14.63, palladium rose 1.2 percent to $1,070, while platinum rose 0.2 percent to $823.10.