The Borneo Post (Sabah)

Brent oil hits four-year high ahead of Iran sanctions, but demand may stutter

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SINGAPORE: Brent crude oil prices rose to their highest since November 2014 on Monday ahead of US sanctions against Iran, the third-largest producer in the Organisati­on of the Petroleum Exporting Countries (OPEC), that kick in next month.

Benchmark Brent crude oil futures rose to as much as $83.32 a barrel on Wednesday and were at US$83.09 at 0335 GMT, still 36 cents, or 0.4 per cent above their last close.

US West Texas Intermedia­te (WTI) crude future CLc1 were up 19 cents, or 0.3 per cent, at US$73.44 a barrel.

WTI prices were supported by a report on Friday of a stagnant rig count in the United States, which points to a slowdown in US crude production, which now rivals top producers Russia and Saudi Arabia.

Brent was pushed up by looming sanctions against Iran, which will start targeting its oil sector from Nov 4.

ANZ bank said on Monday that “the market is eyeing oil prices at $100 per barrel”.

In a sign that the financial market is positionin­g itself for further price rises, hedge funds increased their bullish wagers on US crude in the week to Sept 25, data from the US Commodity Futures Trading Commission (CFTC) showed on Friday, increasing futures and options positions in New York and London by 3,728 contracts to 346,566 during the period.

In a further sign of the impact that the US sanctions on Iran will have on the market, China’s Sinopec said it is halving loadings of Iranian crude oil this month. China is the biggest buyer of Iranian oil.

“If Chinese refiners do comply with US sanctions more fully than expected, then the market balance is likely to tighten even more aggressive­ly,” Edward Bell, commodity analyst at Emirates NBD bank wrote in a note published on Sunday.

Trading activity will be low in China this week due to the Golden Week holiday there.

US President Donald Trump called Saudi Arabia’s King Salman on Saturday, discussing ways to maintain sufficient supply once Iran’s exports are hit by sanctions.

“Until sizable supply is offered up by OPEC, ultimately traders will continue to push the envelope even more,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

“Even if they (Saudi Arabia) wanted to bend to President Trump’s wishes, how much spare capacity does the Kingdom have?” he asked.

“We’re going to find out very soon as approximat­ely 1.5 million barrels (per day) of Iranian oil is effectivel­y going offline on Nov 4. If the market senses that Saudi Arabia capacity is tapped out at 10.5 million bpd ... oil prices will rocket higher with the flashy US$100 per barrel price tag indeed a reasonable sounding target,” Innes said. Looming slowdown? With oil prices soaring, there are concerns over their inflationa­ry effect on demand growth, especially in Asia’s emerging markets where weakening currencies are further adding to high fuel import costs.

Add the trade disputes between the United States and other major powers, especially China, and economic growth into 2019 could be eroded.

Growth in China’s manufactur­ing sector already sputtered in September as both external and domestic demand weakened, two surveys showed on Sunday.

In Japan, business confidence among big manufactur­ers declined in the last quarter its lowest in nearly a year, as firms felt the pinch from rising raw material costs and as global trade conditions worsened.

Reporting by Henning Gloystein; Editing by Christian Schmolling­er and Richard Pullin

Our Standards:The Thomson Reuters Trust Principles. — Reuters

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