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Oil rises 1.6%, settling at $73.25, as US sanctions on Iran tighten supply

Key Points
  • U.S. sanctions on Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries, kick in on Nov. 4.
  • Saudi Arabia is expected to add extra oil to the market over the next couple of months to offset the drop in Iranian production.
  • However, ANZ said in a note that major suppliers were unlikely to offset losses due to the sanctions estimated at 1.5 million bpd.
John Kilduff discusses oil's big rally

Oil prices rose more than 1 percent on Friday, with Brent climbing to a fresh four-year high, as U.S. sanctions on Tehran squeezed Iranian crude exports, tightening supply even as other key exporters increased production.

Brent crude futures rose $1, or 1.2 percent, at $82.72 a barrel by 2:28 p.m. ET. The session high of $82.87 was its highest since Nov. 10, 2014. In the third quarter, Brent has so far gained about 4 percent.

U.S. light crude ended Friday's session up $1.13 at $73.25 a barrel, a 1.6 percent gain. The session high of $73.73 was the highest since July 11. The contract is up almost 4.9 percent this month but down 1.2 percent for the quarter.

"The market is coming to grips with the fact that the Iranian sanctions are not that far away," said Phil Flynn, an analyst at Price Futures Group in Chicago. "It's going to tighten the market."

Analyst says Trump asking OPEC and Saudi Arabia: 'Show me the barrels'

Washington is demanding that buyers of Iranian oil cut imports to zero to force Tehran to negotiate a new nuclear agreement and to curb its influence in the Middle East.

China's Sinopec Corp is halving loadings of crude oil from Iran this month, as the state refiner comes under intense pressure from Washington, said people with knowledge of the matter.

However, India, another top buyer, is committed to buying oil from Tehran, the Iranian foreign minister said.

Other OPEC countries have been increasing production in recent months, but global inventories have been falling as supply tightens, analysts say.

Saudi Arabia is expected to add extra oil to the market over the next couple of months to offset the drop in Iranian production.

Two sources familiar with OPEC policy told Reuters Saudi Arabia and other producers had discussed a possible production increase of about 500,000 barrels per day (bpd) among OPEC and non-OPEC producers.

However, ANZ said in a note on Friday that major suppliers were unlikely to offset losses due to the sanctions estimated at 1.5 million bpd.

At its 2018 peak in May, Iran exported 2.71 million bpd, nearly 3 percent of daily global crude consumption.

Anticipating less demand for oil in 2019, analyst says

Looking to 2019, Saudi Arabia is concerned rising U.S. shale production could create another glut, especially if a stronger dollar and weaker emerging market economies reduce global demand for oil.

OPEC forecasts that its non-OPEC rivals led by the United States will increase output by 2.4 million bpd in 2019 while global oil demand should grow by just 1.5 million bpd.

U.S. crude production rose 269,000 bpd to a record 10.964 million bpd in July, the U.S. Energy Information Administration said in a monthly report.

However, drillers cut three oil rigs in the week to Sept. 28, General Electric's Baker Hughes energy services firm said on Friday. New drilling has stalled in the third quarter with the fewest additions in a quarter since 2017 due to pipeline constraints in the nation's largest oil field.

The Permian Basin is forecast to produce 3.5 million bpd in October, just below output from Iran, OPEC's third largest producer.