Oil gains after surprise drop in Saudi crude output

Oil gains after surprise drop in Saudi crude output

Oil pumps are seen at sunset outside Vaudoy-en-Brie, near Paris, France April 23, 2018.

Looming US sanctions against Iran will likely hit Tehran's oil sales overseas, and it could lead to a price spike in oil contracts.

West Texas Intermediate (WTI) crude futures CLc1 were up 59 cents at $69.60 a barrel and Brent crude oil futures LCOc1 were up 86 cents to $74.61 per barrel at 6.52 a.m. ET.

Sanctions on Iran and additional support from signs of declining oil inventories in the United States pushed the price of oil higher early Tuesday.

French bank Societe Generale said there was now a "comfortable supply" in physical crude markets, but noted, "Iran sanctions will take another one million bpd off the markets".

Mr Trump's sanctions follow the withdrawal of the USA from the Iran nuclear deal earlier this year.

US sanctions on Iran's energy sector are set to be re-imposed after a 180-day "wind-down period" ending on November 4.

Brent, the global benchmark, rose 1.3% $74.65 a barrel. Many analysts have said that this time, the negative impact on Iranian oil trade will be less significant, and Iran will lose only half of the previous loss.

Crude futures briefly rose in post settlement trade, with WTI at $69.07 a barrel, on data from the American Petroleum Institute that showed USA crude inventories fell 6 million barrels last week.

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WTI had pierced 69 the figure again with a high so far of $69.15bbls. President Donald Trump announced in May the United States would withdraw from the deal, which offered sanctions relief in exchange for restraints on Tehran's nuclear weapons program.

In other news, US drillers cut two oil rigs in the week to August 3, bringing the total count down to 859, General Electric's Baker Hughes energy services firm said on Friday.

Iraqi Prime Minister Haider al-Abadi said his country opposes sanctions on Iran, but will abide by them to protect its own interests.

Meanwhile, other major producers are ramping up their output.

This is not about bombarding the market with oil and pushing the price into the $50s, it is about preparing the market and easing the transition, he said.

But new data released on Monday showed Saudi Arabia's oil production fell in July by 200,000 bpd from the month earlier.

Additionally, there are also reports that many USA shale oil drillers posted disappointing quarterly results in recent weeks, hit by rising operating costs, hedging losses and a drop in crude prices away from 2018 highs reached between May and July.

"Oil sanctions are next (in November), and in our view, it would be a big mistake to expect waivers in the weeks ahead based on Trump's track record on Iran", he said.

"Without the extra Saudi oil we had in June, it's hard to crunch the numbers and get a lower price going into the end of the year", said John Kilduff of Again Capital.

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