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U.S. oil erases gain Monday, ends lower with some nations allowed to keep buying Iranian oil despite sanctions

By Mayra P. Saefong

SAN FRANCISCO
Petroleumworld 11 05 2018

U.S. benchmark oil futures on Monday gave up earlier gains, despite the start of U.S. sanctions on the Iranian energy sector, to finish with a modest loss after the Trump administration granted waivers, allowing eight nations to continue buying Iranian crude.

News reports said President Donald Trump on Monday told reporters that he wants to “go a little bit slower” when it comes to sanctions on Iranian oil because he doesn't walk to drive up oil prices. That helped to ease worries about tighter global supplies.

“Although Trump wants punishing sanctions on Iran, he will not do so to the detriment of the U.S. economy and the voting consumer that might feel the pinch at the pump,” said Tim Bray, senior portfolio manager at GuideStone Capital Management, adding that Trump also has Saudi Arabia to thank, in part, for selling more oil.

Meanwhile, natural-gas futures jumped by nearly 9% Monday, buoyed by expectations that cold weather will lead to a significant lift in demand.

West Texas Intermediate crude for December CLZ8, -0.32%  fell by 4 cents, or less than 0.1%, to settle at $63.10 a barrel, pulling back in the last few minutes of trading on the New York Mercantile Exchange. Prices, which had touched an intraday high of $64.14, posted declines for sixth consecutive session.

January Brent crude LCOF9, -0.53% the global benchmark, finished higher, but off the session's highs. It rose 34 cents, or 0.5%, to $73.17 a barrel on the ICE Futures Europe exchange after a high of $74.13.

The moves followed a sharp October selloff that pushed both the global and U.S. benchmarks into correction territory.

The renewed sanctions took effect Monday, but the Trump administration late last week announced it granted waivers to eight countries, which it identified Monday as some of Iran's biggest oil buyers: China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey. These nations can temporarily continue importing Iranian crude.

See: Here's what U.S. waivers on Iran oil sanctions mean for the global crude market

The waivers show “that in the short term at least the Trump administration has set aside the goal of trying to cut Iran's oil exports to zero,” said Peter Kiernan, lead energy analyst at energy-consulting firm Economist Intelligence.

“Although there are concerns of weakening oil demand in 2019, the underlying fear is that an abrupt shut off of Iranian supply would cause a spike in prices and leave oil consuming economies scrambling to buy oil elsewhere,” he said.

Other countries not granted the waivers, but that are significant importers of Iranian oil include France, Spain and the United Arab Emirates, said James Williams, energy economist at WTRG Economics.

“The important thing to remember is that those waivers are not 100% but rather some unknown reduction. Some will go to zero eventually,” he said.

In a note, analysts led by Eugen Weinberg, head of commodity research at Commerzbank pointed out that oil futures had been under pressure in recent weeks well before the waivers were granted, with Brent slumping more than 14% over the past four weeks as both it and WTI, the U.S. benchmark, fell into correction mode, widely defined as a fall of 10% from a recent peak. The weakness reflected growing confidence that increased output by Saudi Arabia and Russia would offset much of Iranian crude lost to the sanctions.

“The more than 14% correction that Brent has seen since the beginning of last month illustrates how the market has moved from a place where the loss of Iranian crude was providing maximum support, including to the physical crude market, to a point where the most extreme scenarios for constraints on Iranian crude—including those which had been reiterated for the longest time by U.S. authorities—are now being disregarded even as sanctions formally take effect,” wrote analysts at JBC Energy, a Vienna-based consulting firm.

In other energy trading, December natural gas NGZ18, -0.70% jumped 8.6% higher to settle at $3.567 per million British thermal units—the highest finish for a front-month contract since late January.

Analysts at TFS Energy, in a note, said the surge was fueled by forecasts indicating well-below normal temperatures and elevated heating demand across the much of the country in the coming weeks.

With the injection season coming to an end, the market is eyeing peak storage level to be around 3.2 trillion cubic feet this year, which is about 600 cubic feet below the five-year average, said Robbie Fraser, commodity analyst at Schneider Electric.

Meanwhile, December gasoline RBZ8, -0.63%  fell 1% to $1.692 a gallon, while December heating oil HOZ8, -0.43%  rose 1.1% to $2.196 a gallon.

 

________________________

Story by Mayra P. Saefong from MarketWatch.

marketwatch.com
11 05 2018 19:28 GMT


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