Oil prices claw back some ground, but demand worries drag

Jeannie Matthews
September 18, 2018

When Iran faced its toughest global sanctions between 2012 and 2015, analysts say it found a number of creative solutions, from repainting and renaming ships to switching off their tracking devices.

The White House has invited Chinese officials to restart trade talks just as it prepares to escalate a trade war with China with tariffs on $200 billion worth of Chinese goods.

In defiance of warnings from the European Union, the JCPOA signatories and many worldwide players, Trump signed an executive order on August 6 re-imposing a first round of sanctions on Iran, which were lifted under the nuclear deal, to levy "maximum economic pressure" on the Islamic Republic.

United States pressure has already caused a 24 per cent drop in Iran's sales between May and August, according to Bloomberg.

In June, India, the largest buyer of Iranian oil after China, said it expects to import less oil from Iran in the coming months because it wants to protect its exposure to the USA financial system.

"In addition, there is a risk to growth from an escalation of trade disputes", the Paris-based agency said.

Exports so far this month slumped to around 1.3 million barrels a day (bpd) after they were as high as 3 million bpd back in 2016.

An expected loss of Iranian oil, declining supply from another OPEC member, Venezuela, and other outages are boosting crude prices, which this week hit $80 a barrel, the highest since May.

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India's Oil Ministry in June told refiners to prepare for a "drastic reduction or zero" imports from Iran from November. On Wednesday, OPEC's analysis arm said demand for the cartel's own crude oil will be nearly 1 million bpd more than the level produced in August.

And Tehran has many tried and tested ways to keep oil flowing.

Then there's the fact that India is heading into an election year.

Iran will face USA sanctions on its oil sector in early November. "India had a deal like that last time", said Madani.

New geopolitical risks are also emerging in the Middle East as the Trump administration uses oil sanctions to achieve broad policy goals in Iran, said Michael Cohen, head of energy markets research at Barclays. Today, the United States is poised to become the world's top oil producer. But in the near term, expectations of peak demand are injecting fresh uncertainty into the market, according to Antoine Halff, the former chief oil analyst at the International Energy Agency.

But European firms are highly vulnerable to USA sanctions.

"If we can not continue [the previous] level of sales even after the European package has been implemented, then that is a red line for us", warned deputy foreign minister Abbas Araghchi on state television.

The Iran nuclear deal "was not going to change Iran's behaviour". That could be enough to propel oil prices higher.

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