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Oil prices edged higher on Monday, with international benchmark Brent rising above the $80 level on expectations of tighter markets upon the imposition of US sanctions on the crude sector in Iran on November.

Brent futures for December delivery gained 0.3 percent to $80.06 per barrel, while US West Texas Intermediate (WTI) oil futures climbed 0.4 percent to $69.47.

Looming Iran Sanctions

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In an effort to cut Iran’s oil exports to zero so as to push the country to renegotiate a deal on its nuclear program, US President Donald Trump’s administration will be reemploying sanctions against the Organization of the Petroleum Exporting Countries’ (OPEC) third-largest producer.

US Treasury Secretary Steven Mnuchin stated on Sunday that it would be more difficult for countries to get sanction waivers than it was during the previous Obama administration, when several countries, particularly in Asia, received them.  

Countries would have to cut their purchases of Iranian oil by more than the approximately 20 percent level they did from 2013 to 2015 to get a hold of waivers, according to Mnuchin, adding that if they do give waivers, he expects the reductions will be significantly larger.

Mnuchin also said he does not expect they will reach zero next month but he does expect they will eventually achieve zero, noting that there have been already very significant declines in advance of this date.     

Iran’s oil exports could drop by as much as two-thirds as a result of the sanctions, which are due to start on November 4, pressuring the markets. OPEC agreed in June to increase supply to make up for the expected disruption to Iranian exports.

However, an internal document suggested OPEC is having trouble boosting supplies as an increase in Saudi’s stockpile was offset by losses elsewhere.

Executive Director of the International Energy Agency (IEA) Faith Bairol stated that other producers may find it harder to make up for the possible Iran disruption, and that oil price could climb higher.

Still, North America might offer some relief as US drillers have added four oil rigs in the week to October 19, bringing the total count to 873, its highest level since March 2015, according to a US energy services firm.

The US rig count acts as an early gauge of future production. With activity rising after months of stagnation, US crude output is also expected to continue to increase.

Moreover, the heated trade conflict between the US and China is expected to start weighing on demand.

A Dubai-based bank stated that the full impact of the Sino-US trade ware will hit markets in 2019 and could play a big role in slowing down oil demand next year, strengthening the likelihood of the market returning to surplus.

Chinese manufacturing is beginning to slow and Trump’s proposal of slapping tariffs on additional Chinese goods from January 1 would be a further drag on trade, said a shipping brokerage firm.

Spokesman for a major fuel refiner KY Lin stated that weaker demand in Europe and the US was already affecting gasoline profit margins as excess fuel is being sent to Asia.

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