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October 22, 2018

Oil prices increase over looming sanctions on Iranian exports

Oil prices have increased as markets are expected to tighten following US sanctions on Iran's oil exports from next month.

Oil prices increased as markets are expected to tighten following US sanctions on Iran’s exports from next month.

Front-month Brent crude oil futures grew 10 cents to reach $79.88 a barrel, while US West Texas Intermediate crude futures increased 19 cents to $69.31 a barrel, reported Reuters.

Although OPEC agreed in June to increase supply to make up the gap created by Iran exports following US sanctions, an internal document seen by Reuters indicated that the organisation is struggling to increase supply due to falls in Venezuela and Angola even as Saudi has increased its production.

International Energy Agency executive director Fatih Birol told the news agency that other producers are likely to struggle to completely fill this gap. Moreover, strong demand can push up the prices further.

In anticipation of disruptions, major oil buyers have been stockpiling.

“The full impact of the US-China trade war will hit markets in 2019 and could act as a considerable drag on oil demand next year.”

Singapore’s futures brokerage Oanda Asia-Pacific trading head Stephen Innes said: “In China, higher seasonal demand and suspected stockpiling are occurring, while similarly the US and the OECD continue building stockpiles ahead of potential supply disruptions this winter.”

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Despite this, Innes said overall global oil supply was currently enough to meet demand.

There are indications of production increasing in North America.

US drillers added four oil rigs last week, taking the total count to 873, the highest level since March 2015.

Furthermore, the trade war between the US and China may take a toll on oil prices.

In a note, Emirates NBD bank said: “The full impact of the US-China trade war will hit markets in 2019 and could act as a considerable drag on oil demand next year, raising the possibility of the market returning to surplus.”

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