Oil rises as USA sanctions on Iran stoke supply worries

Crude Oil Supply

Oil prices fell from more than $100 a barrel in 2014 to less than $30 a barrel in early 2016 amid a supply glut, but have recovered to trade above $70 a barrel since April, as output curbs by the Opec cartel of producers and other countries helped to reduce supplies.

Under the arrangement, Iran's oil payments were deposited into accounts in oil-importing countries and used by Tehran to buy goods. Oil production is down 45.8% to 1.3 million barrels per day since the end of 2015.

Prices drew some support from USA sanctions against Iran, introduced Tuesday in a range of sectors. This first round of sanctions will target Iran's automotive sector, its gold trade, and the Iranian rial.

The balance, however, could be disrupted by potential sanctions by China against US oil imports and unplanned supply disruptions.

Both the US WTI and Brent crude have risen in the past couple of sessions.

On Wednesday, the U.S. Energy Information Administration reported a surprise build of 3.8 million barrels in commercial crude oil inventories.

"As we go more towards the fourth quarter, that's when we really see the risk of prices going well into the 80s and potentially even into the 90s but very critical is how much Iranian production we lose", CNBC quoted Amrita Sen, chief oil analyst at Energy Aspects, as saying.

On top of that, Iranian President Hassan Rouhani has threatened to disrupt regional oil production and exports if the Trump administration follows through with oil sanctions.

Trump warns nations from trading with Iran amid US sanctions
President Donald Trump has warned that countries trading with Iran will not be doing business with the United States ". The Trump tactics have deepened an already serious economic crisis in Iran, fuelling protests around the country.

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USA investment bank Jefferies said in a note that "the Saudi and Russian production surges appear to be more limited" than expected, adding that the imminent reinstatement of US sanctions against Iran also fed bullish sentiment.

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

"It's certainly going to impact on movement between the USA and China, making it less efficient, meaning pressure on prices here", said Andrew Lipow, president of Lipow Oil Associates. Saudi Arabia and Russian Federation are already calling the shots, making the big decisions on oil output bilaterally.

The oil shipments into the world's biggest importer of crude came in at 36.02 million tons last month, or almost 8.48 million barrels per day, higher from 8.18 million barrels per day a year ago, and just over June's 8.36 million barrels per day, according to the data from the General Administration of Customs.

In terms of production, the EIA on Tuesday slightly cut its 2018 expectation for average 2018 US crude output to 10.69 million bpd, down from its previous estimate of 10.79 million bpd.

EIA also reported on Wednesday that USA oil production declined to 10.9 million barrels per day during the week ending July 27, dropping from its record high level of 11 million barrels per day.

US crude futures were down 67 cents at $68.50 a barrel; front-month Brent crude oil futures were down 38 cents on the day at $74.27 a barrel.

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