Oil prices mark weekly gain ahead of Iran sanctions

Oil prices mark weekly gain ahead of Iran sanctions”

Futures fell 2.7% in NY on Thursday for the deepest one-day dive in seven weeks.

The trading sentiments dampened in futures trade as participants indulged in booking profits at current levels but Brent crude trading above USD 86 dollar, capped the losses.

The drop in Korea's imports of Iranian crude oil is expected to increase the cost burden of Korean oil refineries as Iranian crude is relatively cheaper compared with crude oil from other countries.

Traders said global oil markets remained tense because of the looming United States sanctions against Iran's oil exports, which kick in on November 4.

"The rally looks to be a combination of supply tightening from Iran sanctions and an improved demand outlook following the easing of trade sanctions", said Jens Naervig Pedersen, senior analyst at Danske Bank A/S in Copenhagen. The contract is on course for a gain of around 2.5 percent for the week.

Brent for December delivery was fetching around $85.30 per barrel in late London business versus $81.50 per barrel at the same time the previous week. The global benchmark crude traded at a $10.33 premium to WTI for the same month.

Imports of Iranian crude in August edged down 3.3% from July, but the Persian Gulf producer was the fifth-largest supplier to Japan in the month, accounting for 5.2% of the total volume, according to METI data. The startup could lead to an additional 500,000 barrels a day in production. The kingdom has lifted production nearly to a record and may raise it again next month, although doing so will infringe on available spare capacity, limiting Saudi Arabia's ability to react to other supply shocks. After the JCPOA and the European Union agreed to relieve sanctions imposed on Iran on the condition that the country curb its nuclear capacity in July 2015, Iran's crude exports saw a slight increase in 2016, reaching 1.9 million bpd and jumped to 2.1 million bpd in 2017, according to data compiled from OPEC.

The recent data from the U.S. Energy Information Administration showed domestic crude supplies to have surged by about 8 million barrels to about 404 million barrels in the week ended September 28.

"Those of us that count barrels are anxious to see how much Iranian production actually falls next month and then how much Saudi Arabia and Russian Federation will actually make up from any losses", said Brian Kessens, who helps manage US$16 billion in energy assets at Tortoise.

-With assistance from Stephen Stapczynski.

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