Oil Prices Rally On Supply Worries

Oil Prices Rally On Supply Worries

According to Stephen Innes, Asia-Pacific brokerage OANDA's head of trading, the Brent crude oil benchmark's price rise has been supported by the expectation that the upcoming United States sanctions are going to lead to constrained markets across the globe.

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

On the impact of the loss of Iranian crude barrels in the market as a result of the USA sanctions, Tchilinguirian said that although an initial supply gap was likely to emerge, given average inventory levels in the OECD, the oil market was expected to resolve the supply gap through higher prices. Investors anticipate less supply from Iran as USA sanctions on Tehran begin to bite.

US crude was unchanged at $69.80/Bbl, Kallanish Energy reports.

The fall of the rial is primarily due to the country's weak economy and heavy demand for dollars among Iranians, who fear Washington's pullout from the 2015 nuclear deal between Tehran and world powers in May and reinstated USA sanctions could shrink Iran's exports.

Fereydoun Barkeshli, President of both the Vienna Energy Research Group and the Iranian Association for Energy Economists has questioned the sustainability of today's oil price rally.

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FGE estimates Iran's exports will slump to below 1 million barrels a day by mid-2019, while industry consultant Energy Aspects Ltd. expects a plunge of 1.5 to 1.7 million in daily shipments by the end of this year from current levels of about 2.5 million.

Brent crude oil was up 20 cents at $77.84 a barrel by 0745 GMT.

But these factors alone are not enough to create a sustainable oil rally, especially with the escalating trade war between China and the USA threatening demand and the dollar set to strengthen in September. "It therefore remains unclear whether OPEC will be able to absorb a potentially massive fall in Iranian oil exports due to the USA sanctions", they added.

Despite these fears, the global markets don't have much to worry about as they are still fairly well supplied. A larger than expected drop of 600,000 bpd in Iranian exports helped to drive prices higher still.

The Chevron Pascagoula Refinery is pictured as Tropical Storm Gordon approaches Pascagoula, Mississippi, U.S., September 4, 2018. Front-month prices have soared nearly 50 per cent over the past year, and were at $79.17 a barrel at 11:01 am in London on Tuesday.

"If emerging markets get worse. that will impact crude markets", he said.

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