How India, China and European Union weigh in on US' sanctions on Iran

Crude Oil Supply

Oil prices started the week with gains due to the focus on supply disruptions and a potential impact of USA sanctions on Iranian crude oil output.

Spot Brent crude oil futures were at $73.88 per barrel at 0241 GMT on Tuesday, up 13 cents, or 0.2 percent, from their last close.

Indian refiners' interest in US crude will be welcome news to shale producers looking for buyers outside of China, which is likely to scale back imports as the trade dispute between the administration of President Donald Trump and Beijing escalates.

Unipec said that it expects to trade up to 300,000 barrels per day (bpd) of USA crude oil by the end of the year, about triple its trading volume of U.S. oil last year.

They said Iranian exports were likely to drop by up to 1 million bpd by November but even that could push Brent to $85 per barrel if oil markets were hit by other disruptions in producer countries such as Libya or Venezuela.

USA sanctions on Iran's energy sector are set to be re-imposed after a 180-day "wind-down period" ending on November 4.

On the other hand, a reduction in supply as a result of USA sanctions on Iran (which will reduce supply), is providing support on moves lower.

Since late 2016, the Organization of Petroleum Exporting Countries and other nations, including Russia, Kazakhstan and Mexico, have managed the oil market, giving birth to a group popularly known as OPEC+.

"It certainly is a reminder to everyone that the U.S.is serious about sanctions, and it's doubtful they will grant waivers", said John Kilduff, partner at Again Capital Management in NY.

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Crude oil futures for September ended up $0.52, or 0.80%, at $69.01 a barrel.

On Friday, the Houston-based Baker Hughes reported that the number of active drilling rigs in the United States decreased by four to 1,048. -China trade war weighed as well.

An unexpected 200,000 barrel per day (bpd) drop in oil output in July for Saudi Arabia caused crude futures to rise on Monday - and was accompanied by a wave of renewed fears that prices will spiral upward due to geopolitical tensions.

The EIA said refineries last week processed 17.6 million barrels of crude daily, compared with 17.5 million bpd a week earlier, with gasoline production at 9.9 million bpd and distillate production at 5.2 million bpd.

In terms of production, the EIA on Tuesday slightly cut its 2018 expectation for average 2018 USA crude output to 10.69 million bpd, down from its previous estimate of 10.79 million bpd.

Market participants will look for signals on USA inventory levels from a preliminary report due for release by the American Petroleum Institute later Tuesday. Global oil demand continues to be robust on the back of strong economic growth.

Much of the northern hemisphere has been gripped by extreme heat this summer, pushing up demand for industrial and residential cooling.

"With global demand remaining healthy and the global heatwave increasing oil demand, I think prices will remain well-supported in the near term", Hussein Sayed, chief market strategist at FXTM, said.

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