Oil falls on oversupply worries despite Iran sanctions

Alicia Cross
October 29, 2018

However, a global collapse in equities has roiled oil markets this week. The global benchmark has lost nearly $10 a barrel since hitting a high of $86.74 on October 3. While OPEC signaled it could cut output in 2019, prices are being weighed down by signals from the Saudi energy minister that the group and its allies are pumping as much as they can to offset any shortfalls.

U.S. President Donald Trump withdrew Washington from the Iranian global nuclear agreement in May and vowed to re-impose sanctions on Iran's financial, automotive, aviation and metal sectors.

According to the outlook, Brent crude oil spot prices, which averaged 70 USA dollars per barrel in September, are expected to average 81 dollars per barrel in the fourth quarter of 2018 and will fall to an average of 75 dollars per barrel in 2019.

India earlier had declined to bow to USA pressure to cease buying from Iran, but now the Indian government has chose to cut imports from Iran to zero.

The freeze on imports by China National Petroleum Corp. and Sinopec is temporary and purchases may resume depending on the outcome of negotiations with the US, said the people, asking not to be identified because the information is confidential.

"It became even more crucial for the Saudis to boost supply to meet USA demand for lower oil prices because without America's support, it'll be hard for the kingdom to avoid global outcry", Kim Kwangrae, a commodities analyst at Samsung Futures Inc., said by phone. The equities rout is highlighting uncertainty over the global economy, there are growing concerns about the strength of oil demand and crude inventories in the USA are rising.

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U.S. West Texas Intermediate (WTI) crude futures were at $66.44 a barrel, 38 cents, or 0.6 percent, below their last settlement. The contract gained 51 cents to $67.33 on Thursday. Total volume traded Friday was in line with the 100-day average.

Brent crude oil fell $1.12 or 1.5% to a low of $75.77 per barrel and was trading around $76.24, down 65 cents, by 1130 GMT. Prices are down 4.3% for the week. Traders were also reacting to Saudi Arabia's assurance that it would make up for the loss of Iranian oil, by playing a "responsible role" in the market.

India imports more than 80 percent of its crude oil needs, and 65 percent of the supply comes from the Middle East: Iraq, Saudi Arabia and Iran and the other two main suppliers are Venezuela and Nigeria.

"The committee.expressed concerns about rising inventories in recent weeks and also noted looming macro-economic uncertainties which may require changing course". That's in contrast to a pledge made just days ago by Saudi Minister Khalid Al-Falih to pump flat out.

US President Donald Trump described Saudi Arabia's response to Khashoggi's killing at the Saudi consulate in Istanbul as "the worst cover-up ever". The American crude, meanwhile, posted a week-long slump of about 4%.

"This is the year geopolitics came back to the oil markets and it is back with a vengeance", said Helima Croft, global head of commodity strategy at RBC Capital Markets. Gold - a safe haven - surged to a three-month high.

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