Oil rises as US sanctions on Iranian goods go into effect
New York — Oil prices rose about 1% on Tuesday after US sanctions on Iranian goods went into effect, intensifying concerns that sanctions on Iranian oil, expected in November, could cause supply shortages.
Brent crude oil futures rose 89c to $74.64 a barrel by 2.18pm GMT and US West Texas Intermediate (WTI) crude futures were up 52c at $69.53 a barrel.
The first US sanctions against oil cartel Opec member Iran officially came into effect at 4.01pm GMT. These sanctions did not include Iran’s oil exports. The country exported almost 3-million barrels per day (bpd) of crude in July.
The re-imposed sanctions target Iran’s dollar purchases, metals trading, coal, industrial software and its automotive sector. US sanctions on Iran’s energy sector are set to be re-imposed after a 180-day "wind-down period" ending on November 4.
"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.
US President Donald Trump tweeted that the sanctions were "the most biting sanctions ever imposed" and that "Anyone doing business with Iran will NOT be doing business with the United States".
Many European countries, China and India, oppose the sanctions, but the US government said it wants as many countries as possible to stop buying Iranian oil.
"The market continues to price in geopolitical risk from the re-imposition of sanctions by the US on Iran," said Gene McGillian, vice-president of market research at Tradition Energy in Connecticut. "The reports that Saudi Arabia’s production actually dropped in July continue to provide support for the market."
Saudi Arabia’s crude production dropped about 200,000 bpd last month, two sources at Opec said on Friday, despite a pledge by the Saudis and top producer Russia to raise output from July, with Saudi Arabia promising a "measurable" supply boost.
Also supporting prices were a weakened dollar, McGillian said. The dollar index was trading 0.2% lower. A weak dollar can lift the price of commodities, such as oil, that are priced using the currency.
US crude stockpiles were also expected to have dropped last week. Data from the American Petroleum Institute (API) for US inventories is due later on Tuesday at 8.30pm GMT, followed by the government’s report on Wednesday morning.
Heat impacts 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.
Hussein Sayed, chief market strategist at FXTM, said, "With global demand remaining healthy and the global heatwave increasing oil demand, I think prices will remain well-supported in the near term."