Oil prices end higher as Iran sanctions seen restraining global supplies

Crude-oil prices finished in positive territory Tuesday, with reinstated U.S. sanctions against Iran seen as a threat to global supplies, especially after Saudi Arabia’s production has also recently contracted.

On the New York Mercantile Exchange, West Texas Intermediate futuresCLU8, +0.09% for September delivery rose 16 cents, or 0.2%, to $69.17 a barrel. The settlement marked the highest level for the most-active contract since July 30, according to Dow Jones Market Data.

Brent crude for OctoberLCOV8, +0.98% the global benchmark, was up 54 cents, or 0.7%, to $73.75 a barrel on London’s Intercontinental Exchange. Brent also booked its highest close in more than a week.

Both contracts have gained for two of the past three sessions, moving within a relatively narrow range.

“For the most part right now, we’re in sort of a similar environment that we’ve been in the past few months, and that is geopolitical risk is at the top of everybody’s list of what’s driving the market,” Robbie Fraser, commodity analyst at Schneider Electric, told MarketWatch.

President Donald Trump on Monday signed an executive order restoring sanctions on Iran that will bar the sale of the dollar to the Islamic Republic’s government and outlaw the purchase of its sovereign debt, among other measures. Partial sanctions came into effect early Tuesday, with more severe sanctions set for the next 90 days.

The sanctions will remain in effect, U.S. officials said, unless Tehran meets a dozen stringent demands, including that it cease its support for militant groups in the Middle East and end its enrichment of uranium.

Market participants estimate that the sanctions, in full force, could block more than 1 million barrels a day of Iran’s roughly 2.5 million barrels a day of crude exports.

But analysts said the impact on the market could be muted when all is said and done as other producers could fill the gap. The Organization of the Petroleum Exporting Countries and producers outside the cartel, including Russia, agreed in late June to begin ramping up output, after more than a year of cutting production. Moscow has already increased the flow of its oil. Some questioned the impact of the sanctions altogether.

“Presumably, only China and Turkey will refuse to comply with the U.S. demands. China may even import more crude oil from Iran in a bid to offset the shortfall in crude-oil imports from the U.S. due to the trade dispute,” said Commerzbank commodities analysts led by Carsten Fritsch, in a note.

“All the same, oil shipments from Iran will probably be down significantly on balance. Oil prices do not reflect this as yet, and are trading at roughly the level they were before Trump withdrew from the nuclear deal in May,” they said.

Other analysts believe full sanctions will happen and the oil industry has already begun pulling out of the country in anticipation, while banks are refusing to finance Iranian crude trades for fear of antagonizing the U.S. That has already led to lower Iranian exports.

Fraser said “China is the big [risk] because to what extent are they going to import Iranian oil?” He added that China already has indicated that it has no intention of decreasing its imports from Tehran.

The Iran developments hit amid other production developments. Reports last week indicated that Saudi crude production dropped to around 10.3 million barrels a day in July, down from 10.49 million barrels a day in June, according to delegates from OPEC, of which Saudi Arabia is the de facto head.

“Crude prices have climbed after Saudi Arabian production cuts added to market concern about tightening supplies,” said Dean Popplewell, vice president of market analysis with Oanda.

On the fundamental front, the U.S. Energy Information Administration on Tuesday afternoon lowered its 2019 forecast on U.S. crude-oil production to 11.7 million barrels a day, versus 11.8 million barrels a day issued in July. It also now expects 2018 output at 10.7 million barrels per day, fractionally down from 10.79 million barrels projected last month.

The report comes ahead of weekly U.S. petroleum inventory data from the American Petroleum Institute, an industry group, which is due later in the session at 4:30 p.m. Eastern, while official data from EIA is set to be released Wednesday at 10:30 a.m. Eastern.

Among refined products trading, September gasolineRBU8, +1.16%rose less than 0.1% to $2.0651 a gallon, while September heating oilHOU8, +1.04%added 1.2 cents, or 0.6%, to $2.1392 a gallon.

September natural gasNGU18, +1.19%gained 70 cents, or 0.3%, to $2.860 per million British thermal units, holding at around its highest level since July 3 for a most-active contract, after three straight gains.

—Christopher Alessi contributed to this article

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