Oil prices fall after Iran sanctions waivers granted

Oil prices fell almost 2 per cent on Tuesday, one day after the Trump administration announced it will grant waivers to some of Iran’s top crude buying customers.  Nexen photo.

Oil prices also impacted by US-China trade war

Oil prices slipped by almost 2 per cent on Tuesday and US crude futures hit a seven-month low one day after the Trump administration announced it will grant waivers to a number of Iran’s biggest crude buyers.

On Monday, the US re-imposed sanctions against Iran’s oil exports, however, it also granted waivers to China, Japan, South Korea, Italy, Greece, Turkey, Taiwan and India which would allow these countries to purchase crude from Iran without penalty.

By 1:50 p.m., EST, Brent crude futures were down 1.49 per cent to $72.08 after hitting a session low of $71.85, the lowest since Aug. 20.  US West Texas Intermediate crude futures fell 1.58 per cent to $62.10, rising from a session low of $61.96/barrel, the weakest since Apr. 9.

The market is evaluating the rapidly increasing output from Saudi Arabia and Russia as well as recent gains in output from Nigeria and Libya. The market has been and continues to be oversupplied, according to Drillinginfo.

Additional bearish factors include the continuing growth in US production and the global economic slow-down.

While Iran says it has been able to sell as much oil as it needs, it is also urging European countries opposed to US sanctions to do more to shield Iran.

The United States also restored sanctions on Iran’s banking and transport sectors and is threatening more action against Tehran. The temporary sanctions given to the eight countries will run out in 180 days.

The eight nations buy as much as three-quarters of Iran’s seaborne oil exports, according to trade data.  Since the sanctions were announced in May by US President Trump, Iran’s oil exports are down between 40-60 per cent.  The waivers will likely boost Iran’s exports after November.

According to Reuters, Turkish President Tayyip Erdogan said his country, which is a top importer of Iranian crude, would not accept the US sanctions, arguing they are aimed at “unbalancing the world”.

“The details on the Iran sanctions waivers are trickling out, and it appears much more Iranian oil will remain on the market in the near-term than previously thought,” John Kilduff, a partner at Again Capital Management told Reuters.

As well, the ongoing US-China trade war and currency weaknesses pressuring economies in Asia are weighing down oil prices.

Crude supply is on the increase.  In October, the three largest oil producers in the world, Russia, Saudi Arabia and the United States, set a record for production by topping 33 million b/d.

US crude oil inventories increased by 3.2 million barrels, according to the weekly EIA report.

Gasoline and distillate inventories decreased 3.2 million barrels and 4.1 million barrels, respectively.

Total petroleum inventories declined 6.4 million barrels. US crude oil production increased 300,000 b/d from the previous week as offshore recovered from weather related issues. Crude oil imports were down 334,000 b/d to an average of 7.3 million b/d versus the week prior.

These developments have pushed hedge fund managers to be net sellers of petroleum-linked futures and options last week.

Morgan Stanley on Tuesday lowered its price forecast for Brent, saying the global benchmark will stay at $77.5 per barrel to mid-2019.

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