Oil prices tumble as U.S. crude inventories surge

Gladys Abbott
October 18, 2018

Following a meeting here on Monday with Prime Minister Narendra Modi and chief executives of major global and Indian oil and gas companies, Saudi Petroleum Minister Khalid Al Falih said that Saudi Arabia expects its oil production to rise next month from 10.7 million barrels per day so as to counteract the shortfall resulting from the U.S. sanctions against Iran.

Brent crude rose 78 cents to $81.56 a barrel by 2:01 p.m. EDT (1801 GMT), while West Texas Intermediate (WTI) crude was up 30 cents at $72.08 a barrel.

Oil prices hit a four-year high of Dollars 86.74 a barrel earlier this month as the market grapples with the expected loss of Iranian exports due to the U.S. sanctions.

The Kingdom expects its oil production to rise next month from the current 10.7 million barrels per day, Saudi Energy Minister Khalid Al-Falih said.

That build in reported U.S. oil stocks, by the Energy Information Administration (EIA), came as a surprise following reports of a draw, by the American Petroleum Institute (API). Iran is its third-largest supplier after Iraq and Saudi Arabia and meets about 10 per cent of total needs.

What could the current uncertainty surrounding U.S. -Saudi relations mean for oil and gasoline prices?

The U.S. administration has been pushing its allies to cut Iranian oil imports and encouraging Saudi Arabia, other OPEC states and Russian Federation to pump more oil to meet any shortfall.

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US sanctions on Iranian oil exports are due to kick in on November 4.

USA lawmakers pointed the finger at the Saudi leadership, suggesting sanctions could be possible.

Reuters reported on October 15 that oil tankers continued to carry Iranian oil exports to China, India, Turkey, Italy, and a few other destinations earlier this month, one month ahead of the reimposition of oil sanctions.

"America thinks Saudi Arabia can replace this oil".

The oil exchange is a mechanism that attempts to sidestep the US sanctions, which are being reimposed following the USA withdrawal from the nuclear deal, by allowing private companies to buy the crude at auction in Tehran and then resell it privately on the open market. Discussions between the gulf states to restart production at two oil fields in the neutral zone have broken down, with sovereignty reportedly an issue, according to S&P Global Platts.

"There's been a recent correlation between stocks and oil because the sentiment hitting equities markets has been reflecting concerns over the outlook for global growth", said Ole Hansen, head of commodity strategy at Saxo Bank. "This would be so destabilizing for global markets that it would make the current trade tensions between the US and China look like a game of Axis & Allies".

Ahead of the USA sanctions against Iran, India Tuesday said availability of crude oil to replace lost volumes is not an issue but the "sentiment" around losing a big oil supplier is driving prices higher. "The majority of oil demand comes from sectors like heavy vehicles and commercial vehicles, and this demand will remain for a long time to come", he said.

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