U.S. sanctions on the Iranian energy sector begin next week, threatening to cause further tightness in the global market for crude oil.
Speculation Friday, however, that the U.S. plans to allow some countries to continuing buying oil from Iran fed anxiety over a potential oversupply.
Issuing waivers on the Iran oil sanctions would negate “the initial bullish threat almost entirely and now you have major oil players like Saudi Arabia and Russia raising output to offset falling exports that aren’t going to fall by nearly as much as initially expected,” Tyler Richey, co-editor of the Sevens Report, told MarketWatch.
The U.S. has agreed to grant waivers on the sanctions for eight countries, including Japan, India and South Korea, according to a report from Bloomberg, citing a senior administration official. That would allow those countries to continue buying oil from Iran even after the official start of sanctions on Iran’s energy sector.
Sanctions on Iran’s oil begin once the wind-down period for entities dealing with the country’s energy sector to comply ends on Nov. 4. The sanctions follow President Donald Trump’s announcement in May that the U.S. would pull out of the Joint Comprehensive Plan of Action, a 2015 pact aimed at curbing Iran’s nuclear activities.
Read: Why oil prices are plunging despite U.S. sanctions on Iran’s energy sector
In Friday dealings, oil prices edged lower. U.S. benchmark December West Texas Intermediate oil CLZ8, -1.00% traded down 58 cents, or 0.9%, at $63.11 a barrel on the New York Mercantile Exchange, poised to mark another settlement at the lowest since April. Global benchmark January Brent crude LCOF9, -0.38% lost 16 cents, or 0.2%, to $72.73 a barrel on ICE Futures Europe.
Oil prices have posted sharp declines, looking to log a fourth straight week of losses Friday on the back of sizable increases in global production, particularly from Saudi Arabia, Russia and the U.S., as well as concerns that a recent global stock market rout would prompt an economic slowdown, hurting demand for crude.
But oil prices had touched nearly four-year highs in early October, with much of that climb attributable to concerns that the world’s producers wouldn’t be able to fully make up for the drop in Iranian oil exports once the sanctions kicked in.
The Trump administration “finds itself in a difficult place: how to punish the Iranians without shooting the U.S. consumer in the foot,” Marshall Gittler, chief strategist at ACLS Global, told MarketWatch. “A lot of people in areas that voted for the current administration drive big cars or trucks. Higher oil prices and falling crop prices aren’t going to help the administration’s popularity in that part of the world.”
At an average of $2.764 a gallon Friday afternoon, gasoline prices at the pump were down just over 14 cents from last month’s average, but more than 24 cents from last year’s average, according to fuel-tracker GasBuddy.
On whether waivers on the Iran sanctions, if actually granted, would have a big impact on the oil market overall, James Williams, energy economist at WTRG Economics, said the answer would be “yes and no.”
“So far, we do not know which countries other than India, Japan and South Korea” would be given the waivers, he said. “Also, we do not know the size of the waivers.”
“We can almost be certain that the waivers are partial for each country,” Williams said. “If so, those countries could be importing from Iran but perhaps only half the oil that they previously imported.”
‘The problem for all of us trying to forecast the prices is knowing how much oil is coming off the market.’ James Williams, WTRG Economics
“The problem for all of us trying to forecast the prices is knowing how much oil is coming off the market,” he said.
That comes as the market has been attempting to adjust to reports of falling Iranian oil exports as well as the potential loss of most or even all of the country’s oil from the market.
Separate surveys this week by Bloomberg and Reuters revealed that members of the Organization of the Petroleum Exporting Countries lifted output in October to their highest levels since late 2016.
OPEC lifted its production to 33.31 million barrels a day in October, up 390,000 barrels a day from September, according to a recent Reuters survey. Bloomberg’s survey said the group’s output rose by 430,000 barrels a day to 33.33 million barrels a day last month.
The U.S., meanwhile, saw U.S. output reach 11.3 million barrels a day in August, a record monthly level, which also made the U.S. “the leading crude oil producer in the world,” according to the Energy Information Administration.
“The fear that overseas producers and, to a lesser degree, the U.S. [Energy Department] will over compensate for the only moderate supply drop from Iran is weighing heavily on the market right now,” said Richey. “It seems that a new fight for market share is emerging between global oil producers and that is always a bearish scenario for energy prices.”
Still, if the U.S. does issue waivers, it would highlight a key issue:
“If the U.S. is granting waivers, they are saying there is not enough oil in the market right now to replace Iranian barrels,” said Phil Flynn, senior market analyst at Price Futures Group.
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