Oil: global supply with Iran sanctions may be ‘very challenging’

Raheb Homavandi/Reuters

• In June, the Trump administration ordered countries to
  stop importing Iranian oil by November.
• Iran sanctions could make it “very challenging” to
  maintain global supply, the IEA said Friday.
• 
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Crude prices rebounded Friday amid expectations for US
sanctions against Iran, which would cut off oil imports from the
country, and a rise in global demand.

West Texas Intermediate crude jumped 1.3% after
the International Energy Agency said in a report that
planned US sanctions against Iran, the world’s fifth-largest
producer, could threaten global oil supply. Brent, the
international benchmark, rose 1.15%.

“As oil sanctions against Iran take effect, perhaps in
combination with production problems elsewhere, maintaining
global supply might be very challenging and would come at the
expense of maintaining an adequate spare capacity cushion,” the
agency said.

President Donald Trump announced in May the US would withdraw
from the deal among world powers, which offers sanctions relief
in exchange for restraints on Tehran’s nuclear weapons program.
Some of those sanctions on metals and cars were reimposed this
week. 

Oil is expected to be hit in the next round of sanctions, which
are scheduled to take effect in November. In June, the State
Department called on buyers to stop importing Iranian oil by that
time or risk facing US sanctions. 

Analysts estimate that could put more than two million barrels
per day at risk. But with opposition from other signatories of
the Iran deal, especially European allies, FXTM strategist
Hussein Sayed said it’s becoming difficult to guess how many
barrels will be off the market by November.

It also is not clear if the State Department would allow sanction
waivers, which were used in the Obama era to wean the world off
of Iranian oil and avoid supply shocks. Administration officials
have said they might look at requests on a case-by-case basis,
while also maintaining that the goal is to cut Iranian oil
imports to zero. 

At the same time, global demand appears poised to rise. The IEA
raised its 2019 forecast for oil demand growth around the
world by 110,000 barrels a day to 1.5 million barrels. 

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