Oil prices rose on Tuesday after US sanctions on Iranian goods went into effect, intensifying concerns that sanctions on Iranian oil, expected in November, could cause supply shortages.
Brent crude futures rose 66 cents, or nearly one per cent, to $74.41 per barrel by 4.20pm GMT and US West Texas Intermediate crude futures were up 27 cents at $69.28 a barrel.
The renewed US sanctions did not include oil exports from Iran, which exported almost three million barrels of crude oil per day (bpd) in July.
They target Iran’s US dollar purchases, metals trading, coal, industrial software and auto sector. Sanctions on Iran’s energy sector are set to be re-imposed after a 180-day “wind-down period” ending November 4.
“It is a reality check that this is happening and that Iran’s oil exports will be hurt when the oil sanctions hit it in November,” said chief commodities analyst at Commerzbank Bjarne Schieldrop.
US President Donald Trump tweeted that the sanctions were “the most biting ever imposed”.
“Anyone doing business with Iran will NOT be doing business with the United States,” he added.
Many EU countries, China and India oppose the sanctions, but the US government said it wants as many countries as possible to stop buying Iranian oil.
Iraqi Prime Minister Haider al-Abadi said that his country opposes sanctions on Iran, but will abide by them to protect its own interests.
Saudi Arabia’s crude production dropped about 200,000 bpd last month, two sources at the Organization of the Petroleum Exporting Countries said on Friday, despite a pledge by the Saudis and top producer Russia to raise output from July, with Saudi Arabia promising a “measurable” supply boost.
Also supporting prices were a weakened dollar.
The dollar index was trading 0.2 per cent lower.
A weak dollar can lift the price of commodities, like oil, that are priced using the currency.
US crude stockpiles were expected to have dropped last week. Data from the American Petroleum Institute for US inventories yesterday afternoon will be followed by the government's report this morning.
Investment analysts have also warned that a global heatwave could affect oil demand.
Much of the northern hemisphere has been gripped by extreme heat this summer, pushing up demand for industrial and residential cooling.
This mostly affects demand for power fuels such as thermal coal and natural gas.
“With global demand remaining healthy and the global heatwave increasing oil demand, I think prices will remain well-supported in the near term,” Hussein Sayed, chief market strategist at FXTM, said.