Oil prices extend gains after U.S. sanctions against Iran

Eileen GuzmanAug 09, 2018

Many energy analysts believe new sanctions will remove far less of Iran's barrels than the last time when about half its oil exports were erased from the market as a result of USA and European sanctions.

China is the biggest and the most valued customer for Iran's oil and imports more than 650,000 barrels of oil per day from Iran.

The U.S. government introduced a raft of new sanctions against Iran on Tuesday, targeting Iran's purchases of U.S. dollars - in which oil is traded - metals trading, coal, industrial software and its auto sector. Oil prices started the week with gains due to the focus on supply disruptions and a potential impact of USA sanctions on Iranian crude oil output. With the same trend, the average price for Oman crude oil futures contracts at the Dubai Mercantile Exchange (DME) witnessed a price drop by 0.6 per cent compared with previous month.

Prices of the barrel of the West Texas Intermediate are trading on a weaker footing today after the EIA reported United States crude oil inventories decreased less than initially estimated by 1.351 mbpd during the week ended on August 3.

However, a USA plan to reduce Iran's oil exports to zero will not succeed, Iranian Foreign Minister Mohammad Javad Zarif was cited as saying by an Iranian newspaper on Wednesday.

"There is room for [prices in] the crude market to soften a bit more", says John Woods of JJ Woods Associates, adding that inventories could rise further as refineries head toward maintenance season after the summer driving season.

Iraqi Prime Minister Haider al-Abadi said his country opposes sanctions on Iran, but will abide by them to protect its own interests.

"Past instances of El Niño have resulted in sharp drops in USA residential and commercial heating oil demand and prices", it said. Saudi Arabia is also India's fourth largest trade partner after China, the United States and UAE, and bilateral trade during 2016-17 was valued at $25.079 billion, with India's exports amounting to $5.13 billion.

Shale output helped to US production over 10 million bpd this year for the first time since the 1970s.

In the previous US crude sanctions against Iran, about half of its oil exports of 2.4 million barrels were removed from the market.

Benchmark Brent crude oil futures on Tuesday were 1.5 percent higher at $74.80 a barrel. Nationwide inventories in the USA probably fell 3 million barrels last week, according to a Bloomberg survey of analysts before government data due on Wednesday.

The concerns over possible supply disruptions in Iran come at a time when analysts warn that a global heatwave could increase oil demand.

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