SINGAPORE (Reuters) – Oil prices opened firmly on Monday, with Brent hovering close its highest in nearly four years ahead of U.S. sanctions against Iran that kick in next month.
There had been expectations China would ignore U.S. sanctions. However, China’s Sinopec (600028.SS) is halving loadings of crude oil from Iran this month, in a sign that pressure from Washington is having an effect.
“If Chinese refiners do comply with U.S. 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 published on Sunday.
U.S. President Donald Trump called Saudi Arabia’s King Salman on Saturday, discussing ways to maintain sufficient supply once Iran’s exports are hit by sanctions.
“Until sizable supply is offered up by OPEC, ultimately traders will continue to push the envelope even more,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.
“Even if they (Saudi Arabia) wanted to bend to President Trump’s wishes, how much spare capacity does the Kingdom have?” asked Innes.
“We’re going to find out very soon as approximately 1.5 million barrels (per day) of Iranian oil is effectively going offline on Nov. 4. If the market senses that Saudi Arabia capacity is tapped out at 10.5 million bpd … oil prices will rocket higher with the flashy $100 per barrel price tag indeed a reasonable sounding target,” Innes said.