Oil prices rose on Tuesday with revived U.S. sanctions against Iran seen possibly tightening global supplies, especially after Saudi Arabia’s production had also recently contracted.
On the New York Mercantile Exchange, West Texas Intermediate futures CLU8, +0.96% for September delivery rose 55 cents, or 0.8%, to $69.58 a barrel. The close just above $69 Monday marked the highest finish since June 29.
Brent crude for October LCOV8, +1.30% , the global benchmark, was up 83 cents, or 1.1%, to $74.58 a barrel on London’s Intercontinental Exchange.
The Trump administration made good this week on its vow to reimpose sanctions on Iran, trying to sway allies to avoid its oil market, after the White House in May pulled the U.S. out of a 2015 international agreement to curb Iran’s nuclear program.
The sanctions will remain in effect, U.S. officials said, unless Tehran meets a dozen stringent demands, including that it cease its support for militant groups in the Middle East and end its enrichment of uranium.
Market participants estimate that the sanctions, with some coming on line at midnight Tuesday and others being put in place over the next three months, could block more than 1 million barrels a day of Iran’s roughly 2.5 million barrels a day of crude exports.
But analysts said the impact on the market could be muted when all is said and done as other producers could fill the gap. The Organization of the Petroleum Exporting Countries and producers outside the cartel, including Russia, agreed in late June to begin ramping up output, after more than a year of cutting production. Moscow has already increased the flow of its oil.Some questioned the impact of the sanctions all together,
“Presumably only China and Turkey will refuse to comply with the U.S. demands. China may even import more crude oil from Iran in a bid to offset the shortfall in crude-oil imports from the U.S. due to the trade dispute,” said Commerzbank commodities analysts led by Carsten Fritsch in a note.
“All the same, oil shipments from Iran will probably be down significantly on balance. Oil prices do not reflect this as yet, and are trading at roughly the level they were before Trump withdrew from the nuclear deal in May,” they said.
Other analysts believe full sanctions will happen and the oil industry has already begun pulling out of the country in anticipation, while banks are refusing to finance Iranian crude trades for fear of antagonizing the U.S. That has already led to lower Iranian exports.
The Iran developments hit amid other production developments. Reports last week indicated that Saudi crude production dropped to around 10.3 million barrels a day in July, down from 10.49 million barrels a day in June, according to delegates from OPEC, of which Saudi Arabia is the de facto head.
“Crude prices have climbed after Saudi Arabian production cuts added to market concern about tightening supplies,” said Dean Popplewell, vice president of market analysis with Oanda.
Market participants are looking ahead Tuesday to weekly U.S. petroleum inventory data from the American Petroleum Institute, an industry group. Official data from the Energy Information Administration is set to be released Wednesday.
Among refined products trading, September gasoline RBU8, +1.38% rose 1.5% to $2.0968 a gallon, while September heating oil HOU8, +1.47% added 1.5% to $2.1708 a gallon.
September natural gas NGU18, +0.24% gained less than 0.2% to $2.865 per million British thermal units. Its close at $2.86 Monday marked its highest since July 3 for a most-active contract.
—Christopher Alessi contributed to this column.
Providing critical information for the U.S. trading day. Subscribe to MarketWatch's free Need to Know newsletter. Sign up here.
