Oil prices drop amid demand worries, but US-Iran tensions support

CNBC

Reuters

KEY POINTS
  • Benchmark Brent crude futures were down 57 cents, or 0.9%, at $64.29 a barrel by 0342 GMT. They dropped 0.5% on Monday.
  • U.S. crude futures were down 58 cents, or 1%, at $57.32 a barrel. The U.S. benchmark rose 0.8% in the previous session.
Reusable Oil Texas
Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.
Spencer Platt | Getty Images

Oil fell on Tuesday amid concerns over the outlook for crude demand, but prices were supported after Washington announced new sanctions on Iran amid mounting tensions in the Middle East.

Benchmark Brent crude futures were down 57 cents, or 0.9%, at $64.29 a barrel by 0342 GMT. They dropped 0.5% on Monday.

U.S. crude futures were down 58 cents, or 1%, at $57.32 a barrel. The U.S. benchmark rose 0.8% in the previous session.

Brent climbed 5% last week and U.S. crude surged 10% after Iran shot down a U.S. drone on Thursday in the Gulf, adding to tensions stoked by attacks on oil tankers in the area in May and June. Washington has blamed the tanker attacks on Iran, which denies having any role.

U.S. President Donald Trump targeted Iranian Supreme Leader Ayatollah Ali Khamenei and other top Iranian officials with sanctions on Monday, taking an unprecedented step to increase pressure on Iran after Tehran’s downing of the drone.

“This would appear to effectively rule out any talks or negotiations to end the crisis,” said Tom O’Sullivan, founder of energy and security consultancy Mathyos Advisory.

Trump also said on Twitter that other countries should protect their own oil shipping in the Middle East rather than have the United States protect them.

Some said the threat of immediate military conflict had eased slightly.

“Traders have lessened their odds for an immediate U.S.-Iran escalation in this forever smouldering hot spot,” said Stephen Innes, managing partner at Vanguard Markets in Bangkok.

Meanwhile, hopes are waning for progress in Sino-U.S. trade talks at this week’s G20 meeting as investors await a meeting between Trump and Chinese President Xi Jinping. That could further hurt global growth prospects, hitting demand for oil and other commodities.

Weak manufacturing data released on Monday by the Federal Reserve Bank of Dallas added to worries about slipping demand for crude oil.

However, supply is expected to remain relatively tight, as the Organization of the Petroleum Exporting Countries and its allies including Russia, an alliance known as OPEC+, appear likely to extend a deal on curbing output when they meet on July 1-2 in Vienna, analysts said.

Russian Energy Minister Alexander Novak said on Monday that international cooperation on crude production had helped stabilize oil markets and was more important than ever. He also voiced concerns about demand.

Sanctions on Iran and Venezuela imposed by Washington have cut oil exports from the two OPEC members but U.S. production has been rising, leading some Russian officials to accuse Washington of carving out market share for its energy exports.

Oil prices fall as US may grant some waivers on Iran crude sanctions

CNBC

  • Oil prices saw declines on Monday following a development on the impending U.S. sanctions on Iran in November.
  • Last Friday, a U.S. government official said the country could potentially grant waivers to the sanctions for nations which already showed efforts to reduce their imports of Iranian oil.

Oil prices fell on Monday after a U.S. government official said Washington was considering granting waivers to its sanctions against Iran’s crude exports next month, and as Saudi Arabia was said to be replacing any potential shortfall from Iran.

International benchmark Brent crude oil futures were at $83.53 per barrel at 0028 GMT, down 63 cents, or 0.75 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were down 39 cents, or 0.5 percent, at $73.95 a barrel.

U.S. sanctions will target Iran’s crude oil exports from Nov. 4, and Washington has been putting pressure on governments and companies worldwide to cut their imports to zero.

However, a U.S. government official said on Friday that the country could consider exemptions for nations that have already shown efforts to reduce their imports of Iranian oil.

Further weighing on prices. Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore, said there was also “chatter that Saudi Arabia has replaced all of Iran’s lost oil”.

But Innes warned that limited spare production to deal with further supply disruptions meant “the capacity is quickly declining due it Asia’s insatiable demand”.

The U.S. oil drilling rig count fell for a third consecutive week, as rising costs and pipeline bottlenecks have hindered new drilling since June.

Drillers cut two oil rigs in the week to Oct. 5, bringing the total count down to 861, energy services firm Baker Hughes said in its weekly report on Friday.

That is the longest streak of weekly cuts since October last year.

With Iran sanctions still on the table, potential spare capacity constraints and also a slowdown in U.S. drilling, U.S. bank J.P.Morgan said in its latest cross-asset outlook for clients that it recommended to “stay long Jan ’19 WTI on supply risks to crude”.