Oil price drops as Iran sanction waivers kick in

Iran’s Economy Minister Farhad Dejpasand

Homayoun Falakshahi, senior upstream analyst at consultancy Wood Mackenzie, noted that the latest wave of sanctions were more focused on restricting Iran's ability to earn revenues from the sale of crude and condensate and less on actually reducing its cargoes to nil.

Those eight countries are Iran's biggest customers and account for around three-quarters of the Islamic Republic's oil exports.

But President Donald Trump withdrew the United States from the deal in May, calling it flawed to Iran's advantage, and reimposed far-reaching U.S. sanctions in phases, with the most damaging oil and banking penalties taking effect on November 5.

"As a result, oil supplies are going to be higher than the market anticipated", said Andrew Lipow, president of Lipow Oil Associates.

U.S. West Texas Intermediate crude fell as low as $60.40 a barrel on Thursday, briefly wiping out its gains for the year.

Futures fell 1.4 percent in NY on Tuesday.

The Brent crude benchmark was trading down 1.27% (-$0.93) at $72.24, also a roughly $4 per barrel decline week on week. At the session low, WTI touched $61.30/Bbl, falling 20.4% from last month's almost four-year high level of $76.90/Bbl.

As noted in a Center for Strategic and International Studies (CSIS) report released before the exemptions were announced, Japan and South Korea have both zeroed out their imports from Iran.

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On Tuesday, data from the American Petroleum Institute showed that USA crude stocks climbed by 7.8 million barrels in the week ending November 2 to 432 million. In October, OPEC's crude production hit the highest since 2016 and Russian Federation hiked its output to a record of nearly 11.41 million barrels a day.

The combination of strong demand and lower refinery production has driven the stocks of distillate fuel oil, which includes heating oil, down to a seasonal four-year low and supported the WTI-Heating oil crack spread which following an 85% rally since July has reached $30, a five-year high for this time of year.

Russian Federation pumps an average of 10.8million bpd and Saudi Arabia, about 10.5million bpd. "We don't know if we are oversupplied or undersupplied". The outlook for the first half of 2019 is seen subdued as the supply surge is unlikely to be matched by demand growth. In October, Iran's crude exports were estimated at 1.82 million bpd by data intelligence company Kpler and 1.5 million bpd by another firm that traces Iranian shipments.

While Iranian oil exports are expected to fall after United States sanctions took effect on Monday, reports from Opec and other forecasters have indicated the global oil market could have a surplus in 2019 as demand slows.

US President Donald Trump on Monday chose to trumpet sanctions on Iran not with a speech, but a Twitter meme in reference to Game of Thrones, "Sanctions are coming".

If confirmed by the Energy Information Administration on Wednesday, that would be the biggest build in five weeks, compared with an average 2 million-barrel increase in a Bloomberg survey of analyst forecasts.

A committee representing the group is set to meet this weekend and could make a recommendation to the wider group, which meets next month.

The Americans have shown this year that they are capable of ramping up production by more than the Saudis can cut it.

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