Oil prices rise on Iran sanctions, outlook uncertain

Gladys Abbott
October 7, 2018

The Trump administration's decision to pull out of a 2015 worldwide agreement to curb Iran's nuclear program, and a reimposition of economic sanctions on the third-largest producer of crude set to kick in next month have helped to drive oil prices higher. That would be a record level, noted analysts at Commerzbank.

A senior Iranian official says the recent rise in oil prices has offset the impact of USA sanctions on Iran's oil exports, with the country's oil revenues up 16 percent in the past six months.

On Thursday, Brent fell by $1.34 a barrel or 1.6 percent. Supply losses from Iran to Venezuela continued to rattle markets, boosting volatility and driving prices higher.

"If Trump wants to bring stability to the oil market, he should suspend sanctions on Tehran", Zanganeh added.

As a effect, traders are more and more convinced the oil industry is heading to a price spike, "likely $90 to $100" within the year.

A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016.

Oil headed for the longest run of weekly gains since the start of 2018.

The Trump administration has looked to Middle Eastern producers to pick up the slack left by its policy, with Saudi Arabia agreeing earlier this year to increase its oil output by a "measurable" amount and OPEC agreeing to reduce compliance with coordinated supply constraints.

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"I've had conversations [with Indian officials on purchase of Iranian oil]", United States National Security Advisor John Bolton told reporters at a White House news conference.

"The market mood is exceptionally bullish, with fears growing that the US demands for an Iran oil embargo could cause a significant supply shortfall", said Norbert Rucker, head of macro and commodity research at Julius Baer.

Speculators have accumulated bullish long positions betting on a further rise in prices amounting to nearly 1.2 billion barrels of oil.

Lopsided positioning has often been the precursor to a sharp reversal in the price trend when fund managers attempt to realize profits by closing some positions.

But while lopsided positioning is a key signal for a future price reversal it does not indicate how quickly that reversal will take place and at what price level it will occur.

"They're taking a pause after yesterday's sell-off", said Andrew Lipow, president of Lipow Oil Associates.

Typically, prices peak only once there is clear evidence of a slowdown in oil consumption growth and/or OPEC producers come under intense political pressure to increase production.

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