Iran Focus

London, 11 Sep - On Monday, oil prices rose as U.S. drilling stalled and new U.S. sanctions against Iran’s crude exports are set to go into effect in November. Experiencing a jump to $1.09 a barrel, Brent crude oil reached a high of $77.92. U.S. light crude jumped to $68.30 a barrel.

Harry Tchilinguirian, oil strategist at French bank BNP Paribas said, “A higher oil price scenario is built on lower exports from Iran due to U.S. sanctions, capped U.S. shale output growth, instability in production in countries like Libya and Venezuela and no material negative impact from a U.S./China trade war on oil demand in the next 6-9 months.” He told Reuters Global Oil Forum, “We see Brent trading above $80 under (that) scenario.”

On Friday, Baker Hughes said that U.S. drillers cut two oil rigs last week, bringing the total count to 860. Since May, the number of rigs drilling for oil in the United States has stalled, reflecting increases in well productivity but also bottlenecks and infrastructure constraints.

Iranian crude oil exports are declining even before the November deadline for the implementation of new U.S. sanctions. However, while many Iranian oil importers say that they oppose the sanctions, few seem prepared to defy Washington. “Governments can talk tough,” said Energy consultancy FGE. “They can say they are going to stand up to Trump and/or push for waivers. But generally the companies we speak to ... say they won’t risk it,” FGE said. “U.S. financial penalties and the loss of shipping insurance scare everyone.”

Washington has exerted pressure on countries to cut imports from Iran, and it has also urged other producers to raise output in order to hold down prices, as well. U.S. Energy Secretary Rick Perry will meet counterparts from Saudi Arabia and Russia on Monday and Thursday, as the Trump administration attempts to encourage the world’s largest exporter and producer to keep up their output.

Still, many investors are concerned about the impact on oil demand of the trade dispute between the United States and other large economies, as well as the weakness of emerging markets. For example, FGE said, “Trade wars, and especially rising interest rates, can spell trouble for the emerging markets that drive (oil) demand growth.”

The likelihood of much weaker oil prices was fairly low, according to the consultancy, as the Organization of the Petroleum Exporting Countries (OPEC) would probably adjust output to stabilize prices.