Oil Prices: November 4 Iran Sanctions Nearing

10:52 11/01/2018

For days, oil prices have pulled back on rising supplies, and concerns that global economic growth and demand will fall victim to the US-China trade war

The American Petroleum Institute (API) reported yet another crude oil inventory-build this week, for example, of 5.69 million barrels, for example.

That’s now the fourth build we’ve seen in weeks.

In addition, global oil supply is also rising as Russia, Saudi Arabia and the U.S. pumped 33 million barrels per day in September.

At the same time, oil has also been caught in the global market slump, fueled by a trade fight between the world’s two largest economic super powers.

“There are two downward pressures on global oil demand growth. One is high oil prices, and in many countries they’re directly related to consumer prices. The second one is global economic growth momentum slowing down,” said IEA chief Fatih Birol, as quoted by Livemint.com

However, those issues may not be enough to overshadow Iran sanctions.

On November 4, 2018, U.S. sanctions on Iran will begin and Washington has made it clear it expects for Iranian oil customers to stop buying. In fact, imports of Iranian crude have already been on an incredible declines with South Korea and Japan already cutting back.

"The bullish argument for crude still centers on Iran sanctions which are due to begin in November, and continued output declines from Venezuela," said William O'Loughlin, investment analyst at Rivkin Securities as quoted by CNBC.

As sanctions take effect, buyers for Iran’s crude will dry up.

Plus, it isn’t clear how easily – or quickly Iran’s crude-oil output can be replaced. For example, should the world lose Iran’s 2.7 million barrels per day, OPEC may not be able to fill the gap.

Granted, there’s a good amount of spare capacity on paper.

However, OPEC’s reserves are more than likely overstated.

In short, there’s a good chance we’ll see higher oil once sanctions begin.

There are two countries that won’t completely cut off supply, though.

China for example, has already said it would continue to buying Iranian oil, despite Washington’s threat to block Chinese companies from doing business in the U.S. Then again, China doesn’t seem greatly concerned with the threat, given the current trade war.

And while India has sought to appease Washington, it’s in a tough spot with imports. We have to consider the country imports up to 80% of its oil needs. “We cannot end oil imports from Iran at a time when alternatives are costly," noted the Indian government, as quoted by Reuters.

While there were reasons to be bearish on oil prices, Iranian sanctions could send oil prices higher, at least for the foreseeable future.

This article has been provided by a Chasing Markets contributor. All content submitted by this author represent their personal opinions, and should be considered as such for entertainment purpose only. All opinions expressed are those of the writer, and may not necessarily represent fact, opinions, or bias of Chasing Markets.
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