Oil near four-year high as Washington's Iran sanctions loom

Oil near four-year high as Washington's Iran sanctions loom

Oil prices rose more than 1 percent on Friday, with Brent climbing to a four-year high, as USA sanctions on Tehran squeezed Iranian crude exports, tightening supply even as other key exporters increased production.

Worldwide benchmark Brent crude traded at around $83.01 on Monday, up around 0.34 percent, while US West Texas Intermediate (WTI) stood at around $73.42, more than 0.2 percent higher.

OPEC and oil traders are now in fundamental disagreement about the market outlook and the standoff is fuelling a sharp rise in prices that could spell trouble for the global economy over the next 18 months.

The most-active December Brent crude futures contract LCOv1 settled up 59 cents at $81.38 a barrel, below the session high of $81.90 but still within sight of Tuesday's four-year high of $82.55. That's the highest level since November 2014.

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The United States sanctions on Iran's energy industry, which is expected to come into force on November 4, are created to cut crude exports from the third-biggest producer in OPEC.

U.S. President Donald Trump called Saudi Arabia's King Salman on Saturday, discussing ways to maintain sufficient supply once Iran's exports are hit by sanctions. Oil analysts estimate that exports from Iran can be thinner by 1.5 million barrels per day when the new set of United States sanctions start. Two sources familiar with OPEC policy told Reuters that Saudi Arabia and other OPEC and non-OPEC producers had discussed a possible production increase of about 500,000 barrels per day (bpd).

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. The global benchmark crude traded at a $9.68 premium to WTI for the same month. "However, such optimistic claims are falling on deaf ears", PVM Oil Associates strategist Stephen Brennock said. USA officials have been working with refiners in Asia to find replacements or Iranian oil. Bloomberg reports that India has no plans to purchase Iran's oil starting in November with South Korea and Japan pledging the same. Elsewhere, exports look set to continue its plunge with China's top refiner, Sinopec, looking to halve its oil imports from Iran to around 130k bpd.

It's also interesting that the oil price remains high, even though Russian Federation increased its output during September, to a record high level of 11.356 million barrels of oil and condensate a day.

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