Picture: REUTERS
Picture: REUTERS

Singapore — Oil prices rose on Tuesday ahead of the introduction of US sanctions against major crude exporter Iran.

Spot Brent crude oil futures were at $73.88 a barrel at 2.41am GMT on Tuesday, up 13c, or 0.2%, from their last close.

US West Texas Intermediate (WTI) crude futures were up 1c at $69.02 barrel.

US sanctions against Iran, which shipped out almost 3-million barrels a day of crude in July, are set to begin at 4.01am GMT on Tuesday.

“The US seems hell-bent on regime change in Iran,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

Many countries, including US allies in Europe as well as China and India oppose the introduction of new sanctions, but the US government said it wants as many countries as possible to stop buying Iranian oil.

“It is our policy to get as many countries to zero as quickly as possible. We are going to work with individual countries on a case-by-case basis, but our goal is to reduce the amount of revenue and hard currency going into Iran,” said a senior US administration official on Monday.

French bank Société Générale said that while there was currently “comfortable supply in the physical crude markets … Iran sanctions will take another 1-million barrels a day off the markets”, warning that this would leave markets with little spare capacity to deal with unforeseen disruptions.

Heat affects oil

The main oil market price drivers of recent months have been output levels by top producers Russia, Saudi Arabia and the US, renewed Iran sanctions, the US-China trade dispute, and unplanned supply disruptions. Some analysts warned that a global heat wave could also now affect oil demand.

Much of the northern hemisphere has been gripped by extreme heat this summer, pushing up demand for industrial and residential cooling.

This mostly affects demand for power fuels such as thermal coal and natural gas.

But US bank JPMorgan said a warmer than usual fourth quarter, caused by a potential El Nio weather pattern, “can cause droughts, flooding and other natural disasters across the globe, including heatwaves in the US that affect commodities”.

“Past instances of El Nio have resulted in sharp drops in US residential and commercial heating oil demand and prices,” it said.