Iran, Saudi supply worries offset U.S. supply growth

While the U.S. sprung into action to offset oil deficits, prices took an upward spike in a rather cautious trade on Tuesday, fuelled by brewing concerns over impending U.S sanctions on Iran and rising tensions with ally and top oil exporter Saudi Arabia.

Tensions have not been unconnected to missing writer Jamal Khashoggi, whose disappearance, U.S. Senator Lindsey Graham believes, was orchestrated by defacto ruler of Saudi Arabia Prince Mohammed bin Salman, in what Graham notes could seriously jeopardize relations between both nations moving forward.

President Donal Trump has stated the willingness of the Saudi crown prince to launch a full-scale investigation into the sudden disappearance of Washington Post writer Khashoggi, while noting the Prince’s consistent rebuttal of any wrongdoing in its consulate in Turkey where Khashoggi literally vanished.

Jim Ritterbush, president of Ritterbush and Associates notes that “The focus within the oil trade during the next couple of weeks is likely to be on Iran and Saudi Arabia,” and that  “We don’t expect the Kingdom to be as accommodative to the White House requests for stronger production.” He said it’s possible the oil-rich nation could take a drastic cut of up to 500,000 barrels per day of production “as a warning shot should the U.S. opt to impose any type of sanction in response to the Khashoggi developments.”

President Trump has called on the Organization of the Petroleum Exporting Countries to bolster shale production in order to fill the void left by new U.S. sanctions on Iran. Market trends suggest that Iran’s crude oil exports may however be dipping faster than the anticipated deadline on sanctions on Nov.4.

As West Texas Intermediate (WTI) crude racked up 14 cents to close at $71.92 a barrel, Brent crude gained 63 cents to close at  $81.41 a barrel. Last week, prices plummeted as global stock markets went down south, however, financial markets recovery, stimulated by growth in earnings, helped stem the tides for oil prices on Tuesday, traders opined.

Oil prices notched up gains in post-settlement trade as the American Petroleum Institute (API) reported U.S. crude inventories showed a startling decline, with stockpiles falling 2.1 million barrels last week against forecasts closing in on a 2.2 million-barrel build.

The API also said WTI stocks at the Cushing, Oklahoma went up by 1.5 million barrels, making it the fourth consecutive week of increases, barring a contrasting report by official data to be released 10:30 a.m. EDT on Wednesday.

Market experts believe weak margins in U.S. gasoline and increasing U.S. shale production could additionally cap crude price gains.

Energy futures broker Scott Shelton said “The weakening crude spreads almost globally in the face of Iran sanctions is likely generating some concern on how strong market really is and if it’s ready to rally more.” Reports show that Front-month Brent crude futures markedly traded at the lowest premium in more than a month to options with a one year delivery from now. Additionally, Front-month U.S. crude futures witnessed trade near the smallest premium to the 12th month in about 10 months.

Standard Chartered analysts note that “one of the major factors that is leading to a scaling back of long positions is a reappraisal of short-term fundamentals by investors,” and added that it was unlikely to have an overwhelming fourth quarter supply deficit that would be more impactful than cushion prices.

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