Picture: REUTERS
Picture: REUTERS

London — Oil prices rose on Tuesday with revived US sanctions against major crude exporter Iran expected to tighten global supply.

Brent crude oil futures were up 50c to $74.25 a barrel at 9.28am GMT and US West Texas Intermediate (WTI) crude futures were up 29c at $69.30 a barrel.

A first batch of US sanctions against Iran, which shipped out almost 3-million barrels a day of crude in July, officially came into effect at 4.01am GMT on Tuesday.

The reimposed sanctions target Iran’s US dollar purchases, metals trading, coal, industrial software and its car sector.

"It is a reality check that this is happening and that Iran’s oil exports will be hurt when the oil sanctions hit it in November," chief commodities analyst at Commerzbank Bjarne Schieldrop said.

Many countries, including US allies in Europe as well as China and India, oppose the 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," a senior US administration official said on Monday.

"A full embargo seems unlikely and the oil market should remain well balanced in light of rising production and the emerging markets’ fuel inflation pains," Norbert Rucker, head of macro and commodity research at bank Julius Baer, said.

Heat and oil

Analysts also warned that a global heatwave could 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.

"With global demand remaining healthy and the global heatwave increasing oil demand, I think prices will remain well-supported in the near term," Hussein Sayed, chief market strategist at FXTM said.

But US bank JPMorgan said a warmer than usual fourth quarter could stem from a potential El Nio weather pattern that "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.