Oil rallies as Iran sanctions kick in

Iran’s
Minister of Petroleum Bijan Namdar Zangeneh
AP/Ronald Zak

• Oil prices rose more than 1% on Tuesday.
• US economic sanctions against Iran took effect this
  week.
• Other sanctions, including those targeting Iranian
  crude, will resume in November.
• 
  Watch oil trade in real time
  here.
  

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Crude oil prices extended gains Tuesday as the Trump
administration’s sanctions against Tehran kicked in, setting the
stage for a drop-off in production from the world’s fifth-largest
producer. 

West Texas
Intermediate crude jumped 0.9% to $69.50
per barrel at 10:30 a.m. ET. Brent, the international
benchmark, rose 1.3% $74.65 a barrel. 

“Many investors were watching oil prices after the US reimposed
sanctions on Iran,” said Hussein Sayed, chief market strategist
at FXTM. He added that he expects prices to remain
“well-supported” in the near term. 

Some sanctions against Tehran, which had been lifted since 2015
under the Iran nuclear deal, were reimposed Monday. President
Donald Trump announced in May the US would withdraw from the
deal, which offered sanctions relief in exchange for restraints
on Tehran’s nuclear weapons program.

Iran’s oil industry is expected to be hit in the next round of
economic penalties against the country, set to take effect in
November. All countries must stop importing Iranian
oil by then, the State Department said in
June, or face sanctions.

Analysts have predicted the sanctions could put more than two
million barrels per day at risk. But with opposition from other
signatories of the agreement, especially among European allies,
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 could 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. 

“The US is pursuing a strategy to aggressively curb Iranian oil
exports by November,” UBS analysts led by Giovanni Staunovo wrote
in a note. “Despite some comments from US officials on possible
exemptions, we believe there has been no shift in the
administration’s policy stance on Iran.”

On top of that, Iranian President Hassan Rouhani has threatened
to disrupt regional oil production and exports if the Trump
administration follows through with oil sanctions.

After Trump withdrew from the Iran deal, his administration
looked to Middle Eastern producers to pick up the slack. In June,
Saudi Arabia agreed to increase oil supply by a “measurable”
amount.

But analysts remain widely skeptical Saudi Arabia would raise
output by a large enough amount. Production from the unofficial
leader of the Organization of the Petroleum Exporting
Countries (OPEC) unexpectedly fell in July by 200,000
from a month earlier to 10.29 million barrels per day, sources
told Reuters on Friday. 

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