Oil falls after US softens stance on Iranian sanction waivers

Irving Hamilton
July 11, 2018

Brent crude futures LCOc1 were down 65 cents, or 0.8 percent, at $78.21 a barrel by 0627 GMT, having fallen to as low as $77.60.

Oil prices climbed toward a 3½-year high Tuesday, supported by supply issues across several major producing countries and continued uncertainty on the extent USA sanctions on Iran will curb the Middle Eastern country's exports.

Analysts say the main wild card for the second half of the year is how much Iranian crude is lost from the global market after the USA reimposes sanctions in November.

Analysts polled by Reuters forecast that crude stocks fell on average by 4.5 million barrels, ahead of government data at 10.30am.

Crude's rise on Tuesday was fuelled in part by "positive macro spillover from strong global equities", Jim Ritterbusch, president of Ritterbusch and Associates said in a note.

The United States says it wants to reduce oil exports from Iran, the world's fifth-biggest producer, to zero by November, which would oblige other big producers to pump more.

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"That basically took the wind out of the sails from the market", said Phil Flynn, analyst at Price Futures Group in Chicago. But it all depends on which countries they're talking about. "Is it India?. Is it temporary waivers?"

Iranian exports are expected to fall by 800,000 to 1 million barrels a day from their current level of 2.2 million barrels, said Dubai-based Ehsan Khoman, head of research for the Middle East and North Africa region at MUFG bank.

Elsewhere, in Canada an outage at the 360,000-barrel per day (bpd) Syncrude oil sands facility had reduced flows into Cushing, Oklahoma where inventories hit a three-and-a-half-year low last week. It is expected that Syncrude will ramp up to full production in early to mid-September, one of the operators of the project, Suncor, said on Monday.

The updated timeline has muted US price gains and widened the difference between the two benchmarks, said Yawger.

According to the bank, OPEC and Russia's decision to reverse some of the production cuts would deplete the global spare capacity cushion and push prices up, but OPEC's leader Saudi Arabia, as well as Russian Federation, would be making efforts to cap a big upside in oil prices because much higher prices would destroy oil demand growth.

The market has grown concerned that if the Saudis offset the losses from Iran, that will use up global spare capacity and leave markets more vulnerable to further or unexpected production declines.

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