Oil Prices Rise As US Sanctions On Iran Tightens Market

Sean Reid
August 15, 2018

USA crude stocks rose by 3.7 million barrels in the week to August 10, to 410.8 million barrels, private industry group the American Petroleum Institute (API) said on Tuesday.

Crude slid as economic turbulence in Turkey and the strengthening greenback heightened concerns about global oil demand.

Five Caspian Sea states reached a breakthrough agreement on sovereign rights to the sea, paving the way for new oil and gas extraction - and pipelines - after more than two decades of disputes.

Thus, in Libya, production fell by 57,000 to 0.66 million barrels per day, in Saudi Arabia - by 53,000, to 10.39 million barrels, in Venezuela - by 48,000, to 1.28 million barrels per day.

The currency has lost about a quarter of its value against the dollar since the US sanctioned two ministers in President Recep Tayyip Erdogan's government in a spat over the continued detention of an American pastor in Turkey, pushing the economy toward a full-blown financial meltdown.

Analysts expect Iranian crude exports to fall by between 500,000 and 1.3 million barrels per day (Mmbpd), with buyers in Japan, South Korea and India already cutting orders.

The U.S. benchmark crude has declined more than 2 percent this month as worldwide trade disputes threatened to deflate energy demand growth.

"The high crude prices appear to have been taking a toll on demand", said Sukrit Vijayakar, Director of Indian oil consultancy Trifecta.

Yu was quoted as saying Monday that Iran is one of China's largest trading partners and it would continue to import its crude oil.

Oil prices dipped on Monday as rising trade tensions dented the outlook for fuel demand growth especially in Asia, although U.S. sanctions against Iran still pointed towards tighter supply. Despite the United States rig count being at a high for this year, the "production level has stalled, and that raises questions on whether or not there's capacity for the U.S. to increase production further - which is why we're seeing firmer markets".

The futures markets were further weakened late in the session after data from industry group the American Petroleum Institute (API) showed that USA crude stocks unexpectedly rose by 3.7 million barrels the week-ending August 10, compared with analysts' expectations for a drawdown of 2.5 million barrels. Iran is OPEC's third-largest oil producer - behind Saudi Arabia and Iraq - and now pumps around 3.65 million barrels per day, according to Reuters data.

The United States has started implementing new sanctions against Iran, which from November will also target the country's petroleum sector. That could take more than a million barrels of Iranian oil out of global circulation, which could then push oil prices higher again.

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