Oil rises as U.S. sanctions on Iran take effect
Prices also boosted by an unexpected decline in output from Saudi Arabia
Oil prices rose Tuesday morning in the aftermath of the Trump administration’s move to reimpose punishing economic sanctions on Iran, measures that are expected to ultimately paralyze the OPEC nation’s crude exports. Brent crude—the global benchmark—was up 1.25% to $74.67 a barrel on London’s Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 0.91% at $69.64 (U.S.) a barrel.
Oil has also been boosted by an unexpected decline in Saudi Arabian oil output, according to analysts.
President Donald Trump on Monday signed an executive order restoring sanctions on Iran that will bar the sale of the dollar to the Islamic Republic’s government and outlaw the purchase of its sovereign debt among other measures. Unless Iran complies with U.S. demands, far tougher measures that would aim to cut off Iran’s oil exports are expected to take effect in November.
In May, Mr. Trump pulled the U.S. out of a 2015 international agreement to curb Iran’s nuclear program. The move helped Brent temporarily breach the $80 a barrel threshold for the first time in more than 3 1⁄ 2 years.
Tuesday’s round of sanctions are a “reality check that this is happening and that Iran’s oil exports will be hurt when the oil sanctions hit in November,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets.
“This helped to lift oil prices both yesterday and this morning despite the fact that the physical oil market is more than well supplied,” he added.
Analysts widely expect more than one million barrels of Iran’s roughly 2.5 million barrels a day of crude exports could be at risk if full U.S. sanctions are implemented.
Not everybody thinks that the U.S. will implement sanctions to target Iran’s oil exports.
“A full embargo [on Iranian oil exports] seems unlikely and the oil market should remain well balanced,” said Norbert Ruecker, head of macro and commodity research at Julius Baer.
Others believe full sanctions will happen and the oil industry has already begun pulling out of the country in anticipation, while banks are refusing to finance Iranian crude trades for fear of antagonizing the U.S. That has already led to lower Iranian exports.
Last month, Iran’s seaborne exports were 2.317 million barrels a day, down 300,000 barrels a day compared with the previous month, as European refiners cut imports ahead of returning sanctions, according to Paris-based shipping-tracker Kpler.
But other producers are compensating for any falloff in Iranian oil, despite the most recent reports on Saudi Arabia suggesting a falloff from the industry giant.
That is why oil prices are around the same levels they were before President Trump announced a resumption of sanctions in May, Commerzbank said in a research note.
The Organization of the Petroleum Exporting Countries and producers outside the cartel, including Russia, agreed in late June to begin ramping up output, after more than a year of cutting production. Moscow has already increased the flow of its oil.
The move has helped to put a cap on prices in recent weeks. But market observers are looking ahead to official data from OPEC next week on how much oil Saudi Arabia pumped last month.
Market participants are also looking ahead Tuesday to weekly U.S. petroleum inventory data from the American Petroleum Institute, an industry group. Official data from the Energy Information Administration is set to be released Wednesday. Among refined products Tuesday, Nymex reformulated gasoline blendstock—the benchmark gasoline contract— was flat at $2.07 a gallon. ICE gasoil, a benchmark for diesel fuel, changed hands at $660.50 a metric ton, up 0.5% from the previous settlement.