Oil prices fell but hovered near their highest level since November 2014 on Tuesday, with Brent crude not far off from its four-year highs booked the previous day as markets anticipate tighter supply once US sanctions against Iranian oil exports take effect next month.

November contract US West Texas Intermediate (WTI) crude futures declined 0.03 percent to $75.28 a barrel, although it remained close to its strongest since November 2014 of $75.90 marked earlier in the session. Since mid-August, WTI has increased around 17 percent.

International benchmark Brent crude futures for December delivery dropped 0.6 percent to $84.43 per barrel, hovering just below its highest since November 2014 of $85.45-peak hit on Monday. Brent has climbed about 20 percent from its most recent lows in August.

Sentiments picked up after the US and Canada reached a new deal to renew the North American Free Trade Agreement (NAFTA), saving a $1.2 trillion per year open-trade zone that had been on the verge of collapse.

Head of commodity research at a Swiss bank Norbert Ruecker stated that oil prices continue to go up, supported by the impending Iran embargo and related supply concerns.  

Admittedly, supply-side concerns are pushing the oil price higher, but there are now clear warning signs on the demand-side, which could yet send prices lower, according to an economic research consultancy firm.

Iran Sanctions, Supply Concerns


Crude prices have been mainly lifted by looming US sanctions that target Iran’s oil industry, which at its most recent highest level this year provided nearly 3 percent of the world’s almost 100 million barrels of daily consumption.

Iran’s seaborne exports in September hit its lowest since mid-2016 of 1.9 million barrels per day (bpd), according to trade data.

Ruecker said the supply situation seems fragile indeed, as any additional shortfall such as a deterioration of the situation in Venezuela would tighten oil supplies.

Analysts from a UK-based bank believed there is now a growing risk of the crude rising as high as $100 per barrel.

US sanctions are due to begin on November 4, and analysts are seeing a potential shortage of spare production capacity in the short-term, which might prompt huge storage drawdowns.

Managing director at an investment services firm Brian Kessens stated that the group of believers that $100 oil could be hit keeps expanding, with spare capacity concerns continuing to grow.

The Organization of the Petroleum Exporting Countries (OPEC), of which Iran is a member and the third biggest producer, has faced difficulty in replacing export losses from Iran.

Saudi Arabia, the world’s biggest oil exporter and OPEC’s de-facto leader, is expected to raise output to the market to offset cuts in Iranian production.

Two sources familiar with the matter said Saudi Arabia as well as other OPEC and non-OPEC producers had discussed likely output increase of around 500,000 bpd.

Analysts cautioned that economic expansion might be weakening due to soaring crude prices and several currencies in emerging markets, including India’s rupee and Indonesia’s rupiah falling.

US President Donald Trump and Saudi Arabia’s King Salman have discussed last week about the efforts being carried out to keep supplies to sustain oil market stability and global economic growth.  

Head of trading for Asia-Pacific at futures brokerage in Singapore Stephen Innes said even if Saudi Arabia, wanted to grant Trump’s wishes, it is uncertain how much spare capacity the kingdom has.

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