Oil inches higher on sanctions, but trade tiff limits gains
Singapore — Oil prices edged up on Friday on the worry that renewed US sanctions against Iran will tighten supplies, although the escalating trade dispute between Washington and Beijing restricted gains.
Front-month Brent crude oil futures were at $72.21 a barrel at 4.44am GMT, up 14c, or 0.2% from their last close.
US West Texas Intermediate (WTI) crude futures were up by 6c at $66.87 a barrel.
Despite the possibility of a slowdown in economic growth due to escalating trade tensions, oil markets are for now relatively tight, analysts said, mostly because of sanctions on Iranian oil exports the US plans to implement in November.
Although other powers, including the EU, China and India oppose sanctions, many are expected to bow to American pressure.
"We do not believe that sanctions have been fully priced into Brent, leaving room for a significant run-up in prices towards the end of the year," BMI Research said.
Analysts expect the drop-off in Iranian crude exports to range between 500,000 barrels a day and 1.3-million barrels a day, with buyers in Japan, South Korea and India already dialling back orders.
The reduction will depend on whether major buyers of Iranian oil in Asia receive sanctions waivers that would still allow some imports.
It was also not clear whether China, the biggest buyer of Iranian crude, will bow to Washington’s pressure.
Beyond Iran sanctions, the escalating trade dispute between Washington and Beijing was weighing on global markets.
On a weekly basis, Brent is set for a 1.5% fall, while WTI is heading for a drop of about 2.5%.
"The market seems to be focused on fears of reduced demand from China, partially due to the effects of the trade wars between China and the US," said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.
In the latest round, China said it would impose additional tariffs of 25% on $16bn worth of US imports.
Although crude was dropped off the list, replaced by refined products, many analysts say Chinese imports of American crude will still drop significantly.
"Already we are hearing that Chinese refiners are holding back on US crude, despite escaping tariffs," ANZ bank said in a note on Friday.
Growing global trade tension has also led to a slump in the currencies of major emerging economies such as India, Turkey and China.
These devaluations have made imports of oil, which is traded in US dollars, more expensive, potentially denting demand.
"The major devaluation of many emerging market currencies relative to the US dollar means that in local terms oil is higher than what we see on the screen," US investment bank Jefferies said on Friday.