Brent price dips to $72 before Iran sanctions set in
Oil slipped to a six-month low despite a buoyant rally midyear on the back of excess supply, in advance of US sanctions on Iran kicking in.
The price of benchmark Brent fell to $72.84 as of 12.52am Eastern Time on Friday, a steep drop after holding above $80 per barrel for much of the summer
The price of West Texas Intermediate, which tracks North American crude grades, meanwhile fell to $63.61, after performing around the $70 range since mid-May.
The price collapse from a four-year high in early October comes as a shock to the markets, which had anticipated a rally after the US administration under President Donald Trump forced Iran’s crude buyers to slash exports ahead of the implementation of sanctions tomorrow.
Iran’s biggest buyers including China, which increased their Iranian offtake by 37,000 barrels per day during the first eight months of the year, are expected to cut back up to 75 per cent in November, following the implementation of sanctions.
On Friday, the US said it would grant waivers to eight buyers of Iranian oil. US Secretary of State Mike Pompeo is expected to reveal the eight names tomorrow. Turkey, Iraq, India, Japan and South Korea are among the eight buyers, according to reports.
Before the waivers announcement, an estimated 1.1 million bpd of Iranian oil was expected to be lost to the market, according to energy consulting firm Wood Mackenzie
Though general market sentiment is that the tough US position is likely to reduce crude production, investment bank Goldman Sachs maintains a bullish outlook for Brent, maintaining its forecast at $80. The bank’s estimate factors in the continued expectation of sanctions biting hard on Iran’s exports as well as limited spare capacity among Opec states.
Swiss lender Julius Baer on the other hand noted that while near-term supply risks persisted in the markets, the producers’ supply cushion would be on the mend with oil expected to trend much lower in 2019.