Crude Climbs as US Sanctions Weigh on Iran's Oil Exports

Oil prices edged higher on Tuesday as the looming US sanctions capped Iran’s crude exports, curbing global supply despite attempts by Washington to urge other major suppliers to ramp up production.

Benchmark Brent crude futures for November delivery rose 0.7 percent to $77.97 per barrel, while October contract West Texas gained 0.3 percent to $67.78 a barrel.

Ramping Up Output

US Energy Secretary Rick Perry met Saudi Energy Minister Khalid al-Falih on Monday in Washington as the US urges big oil-producing and exporting countries to maintain high output for two months before it is due to renew sanctions on Iran’s petroleum industry.

Perry will also meet Russian Energy Minister Alexander Novak on Thursday in Moscow.

Analyst Stephen Innes stated that the markets are expecting significant price pressure as Iran sanctions draw near.

US President Donald Trump’s administration has called for other countries to reduce their imports in Iran, and allies like South Korea, Japan, and India seem to be falling in line.

However, the US government has no intention to increase oil prices as such action could harm economic activity or lead to sluggish global expansion.

Russia, the US, and Saudi Arabia are currently the world’s top three largest oil producers, accounting for about a third of the world’s nearly 100 million barrels per day (bpd) of daily crude consumption.

With their output combined, their overall production has grown by 3.8 million bpd since September 2014, ending higher than the peak output Iran has managed over the past three years.

Russia along with a group of producers in the Middle East, which largely makes up the Organization of the Petroleum Exporting Countries (OPEC), may establish a new long-term cooperation agreement on December, according to Novak.

Since January 2017, OPEC members and non-OPEC members have been voluntarily keeping supplies in check to tighten markets, but with prices climbing above 40 percent since then and markets notably tighter, producers are being pressured to increase production.

As oil markets in the Middle East are also tightening, several Asian refiners are looking for alternative supplies, with South Korean and Japanese imports of US crude marking a record in September.

US oil producers are in search of new buyers for the crude they used to sell to China before orders slowed due to the trade conflict between the US and China. Traders said this is one of the reasons that the discount for US crude against Brent has broadened to around $10 per barrel, the biggest since June.

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