A Review of the Nigerian Energy Industry

Brent hits four-yr high as U.S. sanctions on Iran tighten supply

*Brent, WTI.

28 September 2018, News Wires — Oil prices rose more than 1 percent on Friday, with Brent climbing to a fresh four-year high, as U.S. sanctions on Tehran squeezed Iranian crude exports, tightening supply even as other key exporters increased production.

Brent crude futures rose $1.06 to $82.78 a barrel, a 1.3 percent gain, by 11.16 a.m. EDT (1516 GMT). The contract hit a session high of $82.79, its highest since Nov. 10, 2014. In the third quarter, Brent has so far gained more than 4 percent.

U.S. West Texas Intermediate (WTI) crude futures were up $1.03 to $73.15 a barrel, a 1.4 percent gain. It reached a session high of $73.35, highest since July 11. The contract is up almost 5 percent this month but down 1.3 percent for the quarter.

A new round of U.S. sanctions on Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), kick in on Nov. 4.

“The market is coming to grips with the fact that the Iranian sanctions are not that far away,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “It’s going to tighten the market.”

Washington is demanding that buyers of Iranian oil cut imports to zero to force Tehran to negotiate a new nuclear agreement and to curb its influence in the Middle East.

China’s Sinopec Corp is halving loadings of crude oil from Iran this month, as the state refiner comes under intense pressure from Washington, said people with knowledge of the matter.

However, India, another top buyer, is committed to buying oil from Tehran, the Iranian foreign minister said.

Other OPEC countries have been increasing production in recent months, but global inventories have been falling as supply tightens, analysts say.

Saudi Arabia is expected to add extra oil to the market over the next couple of months to offset the drop in Iranian production.

Two sources familiar with OPEC policy told Reuters that Saudi Arabia and other producers had discussed a possible production increase of about 500,000 barrels per day (bpd) among OPEC and non-OPEC producers.

However, ANZ said in a note that major suppliers were unlikely to offset losses because of the sanctions estimated at 1.5 million bpd.

At its 2018 peak in May, Iran exported 2.71 million bpd, nearly 3 percent of daily global crude consumption.

Looking to 2019, Saudi Arabia is concerned that rising U.S. shale production could create another glut, especially if a stronger dollar and weaker emerging market economies reduce global demand for oil, sources familiar with OPEC policy say.

U.S. crude production hit a weekly record high of 11.1 million bpd last week, the U.S. Energy Information Administration estimated.

However, new drilling in the United States has stalled so far this quarter due to pipeline constraints in the country’s largest oil field. The Permian Basin is forecast to produce 3.5 million bpd in October, just below output from Iran, OPEC’s third largest producer. [RIG/U]

Weekly data on the U.S. drilling rig count, an indicator of future production, is due at 1 p.m. EDT.

  • Reuters
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