Oil Prices Rally On Supply Worries

Daniel Fowler
September 6, 2018

According to reports by Japanese news media Jiji Press agency and Kyodo on September 3rd, the country's major oil wholesalers are preparing to suspend Iranian crude imports next month in response to USA sanctions against Tehran and threats to companies doing business with Iran.

Striking a balance between maximizing revenue and keeping a lid on prices in order not to stall demand, top crude exporter Saudi Arabia is managing its own supply with a goal to keep crude prices in a range between $70 and $80 per barrel, OPEC and industry sources told Reuters this week.

"These Iranian barrels that we're going to lose, it's really going to hurt".

Oxford Economics warned the second wave of United States sanctions attacking Iran's main resources, its oil industry and crude exports, will badly hit its economy.

Crude oil prices are now slightly higher. He also stated that the Iranian production is already giving indications of declining.

The sanctions were originally halted in 2015, when China, Russia, Britain, France, Germany, the European Union, Russia, the UK, Iran and the U.S. signed the Joint Comprehensive Plan of Action - also known as Iran nuclear deal.

State refiners, which drove India's July imports of Iranian oil to a record 768,000 barrels per day, had planned to almost double oil imports from Iran in 2018/19.

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"Russia is also unable to significantly expand its production which, following an increase in the summer, is now close to its post-Soviet record high", said Commerzbank analysts in a note.

This output was helped by Libya recovering some of its production capability. It is due to this high count of oil rigs that the U.S. has been able to maintain such high production rates.

Iran suffered the biggest output drop across the group, of 240,000 barrels a day, pushing its production down to 3.5 million barrels a day.

A senior Iranian nuclear energy official says Tehran is ready to enrich uranium beyond previous levels in case the remaining parties to the country's 2015 nuclear agreement fail to salvage it.

"It isn't at all clear that such type of economic headwinds will topple oil prices", Innes said.

Pair Iran with a booming USA economy and soaring driver demand for gasoline, and Kilduff contended that Wall Street is coming up with a bullish scenario for crude that it hasn't had in years. This could mean that consumers in the U.S. could pay up to as much as $4 per gallon for unleaded gasoline.

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