Brent oil hits highest since 2014 before US sanctions on Iran bite

(London) REUTERS: Brent crude oil hovered close to its highest since November 2014 yesterday, supported by supply concerns before the US sanctions against Iran come into force next month.

Benchmark Brent was up 16 cents at US $ 82.89 a barrel by 0852 GMT, after touching US $ 83.32, the highest level in almost four years. The US light crude was up 4 cents at US $ 73.29. “Saudi Arabia is signalling that they do not have a lot of prompt spare capacity available or that they don’t have the will to really use it on a proactive basis,” Petromatrix strategist Olivier Jakob said. “There’s nothing right now that gives a strong incentive to be a strong seller of the market,” he said.

Investors have indicated they see prices rising, loading up on options that give the holder the right to buy Brent crude at US $ 90 a barrel by end-October. 

Open interest in call options at US $ 90 a barrel has risen by nearly 12,000 lots in last week to 38,000 lots or 38 million barrels.
Higher oil prices and dollar strength, which has battered the currencies of several big crude importers, could hit demand growth next year, analysts said.

But, for now, the focus is on the US sanctions on Iran’s energy industry that will apply from November 4 and are designed to cut crude exports from the third biggest producer in the Organisation of the Petroleum Exporting Countries.

Several major buyers in India and China have signalled they will cut purchases of Iranian oil. China’s Sinopec said it had halved loadings of Iranian oil in September.

“If Chinese refiners do comply with the US sanctions more fully than expected, then the market balance is likely to tighten even more aggressively,” Edward Bell, commodity analyst at Emirates NBD bank wrote in a note.

Hedge funds have increased bets of a further price rise. Exchange data shows the combined net long position in Brent and the US light crude futures and options at its largest since late July, equivalent to about 850 million barrels of oil.

US President Donald Trump spoke to Saudi King Salman on Saturday on ways to maintain sufficient supply.

“Even if they (Saudi Arabia) wanted to bend to President Trump’s wishes, how much spare capacity does the Kingdom have?” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

With about 1.5 million barrels per day of Iranian oil expected to go offline on November 4, prices could “rocket higher with the flashy US $ 100 per barrel price tag indeed a reasonable sounding target” if investors doubted the Saudi ability to respond with enough extra output, he said.