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Oil rallies as Iran sanctions kick in

08 August 2018

China is the only one that has flatly refused to reduce its intake of Iranian crude although it did say it will not expand its Iranian imports. Meanwhile, the United States said Tuesday it will begin imposing tariffs on an additional $16 billion in Chinese imports in two weeks.

On Friday, crude oil futures ended down $0.47, or 0.70%, at $68.49 a barrel, after data showed oil output in Russian Federation to have increased sharply by 150,000 barrels per day in July, compared to a month earlier. Will the US-China War now take now escalate even further as Beijing refuses to cease business with Tehran?

On top of that, Iranian President Hassan Rouhani has threatened to disrupt regional oil production and exports if the Trump administration follows through with oil sanctions.

"A full embargo seems unlikely and the oil market should remain well balanced in light of rising production and the emerging markets' fuel inflation pains", Norbert Rucker, head of macro and commodity research at bank Julius Baer, said.

As plentiful volumes of U.S. crude might be looking for new homes when China imposes a 25% import tariff on American crude, a large number of the displaced barrels could make its way to India, analysts said.

Of course, the Saudis were just the tip of the iceberg in terms of factors compelling experts on Monday to foresee gloomy times ahead: worry over the USA sanctions against Iran seemed to reach a fever pitch, with Michele Della Vigna, head of energy industry research at Goldman Sachs International, telling Bloomberg, "We are eating very quickly through OPEC's spare capacity... we are going into a very, very tight oil market". Both U.S. West Texas Intermediate and worldwide benchmark Brent crude oil futures contracts are trading higher on Tuesday. Total volume traded was about 79 percent below the 100-day average.

US West Texas Intermediate (WTI) crude futures were up 1 cent at.02 barrel. The contract rose 90 cents to close at $74.65 on Tuesday. The global benchmark crude traded at a $5.82 premium to WTI for the same month. Brent, the global benchmark, rose 1.3% $74.65 a barrel.

USA investment bank Jefferies contributed to the analytical concerns by stating in a note that, "the Saudi and Russian production surges appear to be more limited" than expected.

Indian Oil Corp, the country's top refiner, will buy 6 million barrels of U.S. crude oil for November to January delivery through a mini-term tender, its head of finance said on Wednesday. Rebels have cut exports by up to a million barrels per day. If it's confirmed by the EIA data, it would be the twelfth straight week of losses.

Market participants will look for signals on United States inventory levels from a preliminary report due for release by the American Petroleum Institute later Tuesday. China has vowed to strike back again, dollar-for-dollar, on the $16 billion tranche.

Oil rallies as Iran sanctions kick in