Oil Climbs as Market Eyes Iran Supply Risks

Amid fears of being sanctioned by US, Japan to stop importing oil from Iran

Brent crude LCOc1 futures fell 90 cents to settle at $77.27 a barrel, a 1.15 percent loss.

Brent has traded between $70 and $80 since April; a range that Saudi Arabia and other producers in the Organization of the Petroleum Exporting Countries would like to see maintained for now, OPEC and industry sources have said.

Japan's major oil distributors, taking heed of US demands, are expected to suspend crude imports from Iran in October and switch to other producers in the Middle East, sources with knowledge of the plans say.

A second phase of sanctions targeting Iran's crucial oil industry and banking sector will be reinstated on November 5.

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Reports are also suggesting that production is moving higher in Russian Federation too and at a time when the USA oil production has reached an all-time high of 11 million barrels per day.

Still, worries persist that the market is due for a tightening anyway: Stephen Innes, head of trading for Asia-Pacific at OANDA, said Brent was "supported by the notion that US sanctions on Iranian crude oil exports will eventually lead to constricted markets".

OPEC and its allies agreed in June to increase combined output by 1 MMbpd to meet consumer demand and prevent a sharp rise in prices.

Russia's crude and condensate production averaged 11.21 million b/d in August, dipping 8,000 b/d from July, when the country cranked up production significantly, according to preliminary data released Sunday by the Central Dispatching Unit, the energy ministry's statistics arm.

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"With the anticipation of up to 1.5 million barrels per day affected by the U.S. sanctions on Iran, one would expect prices to move higher in the weeks ahead".

"US producers are resisting temptation and exercising capital discipline, Opec and Russian Federation have convinced market participants they are managing the supply of over half of global production, the U.S. is using sanctions more actively, and several key Opec producers are at risk of being failed states", Barclays said.

But these factors alone are not enough to create a sustainable oil rally, especially with the escalating trade war between China and the US threatening demand and the dollar set to strengthen in September.

Market participants were also watching Tuesday for developments in the US-China trade war, with the US expected to announce another round of tariffs on Chinese goods. The global benchmark had climbed in the previous session to $79.72 a barrel, its highest since May. Given the current upside momentum, this price level could easily be achieved later today especially if additional U.S. Gulf oil operations are shutdown once the hurricane's path and strength are determined.

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"Fears of Turkey's currency crisis spreading to other emerging markets have prompted demand-side concerns", said Abhishek Kumar, senior energy analyst at Interfax Energy.

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