IEA warns of oil price rise as sanctions on Iran bite

Mae Love
September 14, 2018

Russian Energy Minister Alexander Novak said on Tuesday that Russia and a group of producers around the Middle East dominated Organization of the Petroleum Exporting Countries (OPEC) may sign a new long-term cooperation deal at the beginning of December, the TASS news agency reported.

Oil prices rose on Tuesday amid looming U.S. sanctions against Iran's petroleum industry, despite efforts by Washington to get other major suppliers to make up for the expected disruption.

"The price range for Brent of $70-$80 per barrel in place since April could be tested".

Brent crude futures traded at $79.20 a barrel while USA crude futures rose 61 cents to $69.86 a barrel.

"The fact that much higher supply is already needed from the likes of Saudi Arabia - and the low levels of spare capacity remaining - leave the global system highly vulnerable to any further significant outage", he said.

The Persian country will by November 4 see a slew of countries already abandoning oil supply contracts and the rest scrambling for alternatives as crushing USA sanctions on Iran threaten to impose additional sanctions on those defying the ban on crude imports from the country. Furthermore, Iranian oil exports continued to decline before the US sanctions go into effect in November to provide an additional boost to oil.

US West Texas Intermediate (WTI) crude futures were at $69.88 per barrel at 0635 GMT, down 49 cents, or 0.7 percent, from their last settlement.

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China has said that it would not stop buying Iranian oil, but Beijing is also said to have agreed not to increase its oil purchases from Iran.

"The last couple of weeks have seen the expected squeeze on Iranian crude flows taking shape, with overall outflows down markedly".

The Economic Times (ET), an Indian daily said Iran now exports about 2 million barrels a day which is already 28% less than what they used to export in April. "The situation should be closely watched, the right decisions should be taken", he said.

As Middle East markets tighten, Asian buyers are seeking alternative supplies, with South Korean and Japanese imports of USA crude hitting a record in September. "Russia has the potential to raise production by 300,000 barrels (per day) mid-term, in addition to the level of October 2016", he said.

Oil traders were also watching the progress of category 4 Hurricane Florence, which is expected to make landfall in the United States by Friday.

That month Russian Federation produced 11.247 million bpd, a post-Soviet Union record-high.

The storm is expected to make landfall on the U.S. East Coast on Friday.

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