Oil prices reach four-year high ahead of United States sanctions on Iran

Eileen GuzmanOct 03, 2018

Oil futures continue to take a spike with more than USD$2 a barrel on Monday, a steep level not seen since November 2014, as Iran braces for the upcoming second wave of economic sanctions implemented by the United States following the Islamic Republic's alleged violation of the 2015 Nuclear Pact, while a North American trade deal fosters growth in the region.

USA and global benchmark crude futures were poised Friday to post a third straight weekly gain but according to Dow Jones Market Data, October is the worst month for Brent crude, based on average monthly performance since 1990, while November stands as the worst for West Texas Intermediate. WTI has risen around 18 percent since mid-August.

Brent crude oil futures - the oil market which Nigeria and other global giant trade on - rose to $85.11 a barrel at the open of the market on Tuesday, October 2, 2018, according to data seen on oilprice.

This would be the first highest trade deal hitting above the USD$85 per barrel threshold since November of 2014. Brent has climbed about 20 percent from its most recent lows in August.

Given that OPEC and Non-OPEC rebuffed President Trump's demands to boost oil production in order to offset the loss of supply from Iran and Venezuela suggests that oil prices may continue to track higher.

Donald Trump spoke on the phone Saturday with King Salman bin Abdulaziz of Saudi Arabia, days after the US president's latest criticism of OPEC over high oil prices. The sanctions forbid oil-importing countries and companies from buying Iranian crude, so this could put a squeeze on overall global supplies and make the commodity costlier.

Others question whether the kingdom is willing to increase production enough to act as a cap on prices or bring them back down below $80, despite political pressure from the United States.

Washington's sanctions are set to start on November 4, and analysts say there may not be enough spare production capacity in the short-term to meet demand, potentially requiring large storage drawdowns. "However, such optimistic claims are falling on deaf ears", PVM Oil Associates strategist Stephen Brennock said.

Several major buyers in India and China have signaled that they will cut purchases of Iranian oil. In November, the global benchmark has seen a fall of about 2.8%, with WTI down 3.2%. China's Sinopec said it halved loadings of Iranian oil in September.

"We are in the time of the year when many refineries are down for maintenance" and prices are typically lower because maintenance means lower demand for oil" from those refineries, said James Williams, energy economist at WTRG Economics.

Britain's Barclays bank, however, said on Tuesday that "OPEC has ample spare capacity".

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