Brent Hovers Near Highest since 2014, Iran Sanctions Loom

International benchmark Brent crude hovered near its highest since November 2014 on Monday, as concerns before the US sanctions that target Iran’s energy industry kept the Brent well-supported.

Brent crude futures for December delivery rose 0.4 percent to $83.12 per barrel, lingering just below its highest in almost four years of $83.32.

November US West Texas Intermediate climbed 0.2 percent to $73.42 per barrel.

Strategist Olivier Jakob said Saudi Arabia are signaling that they do not have a lot of prompt spare capacity available, or that they do not have the will to really use it on a proactive basis. There is nothing right now that gives a strong incentive to be a strong seller of the market, Jakob added.

Investors have suggested that they see prices increasing, loading up on options that enable the holder to purchase Brent crude at $90 per barrel by the end of the month. Open interest in call options at $90 per barrel has gone up nearly 12,000 lots in the previous week to 38,000 lots or 38 million barrels.

Hedge funds have also raised their bets on further price growth. Exchange data shows combined net long position in Brent and WTI as well as options at its highest since July, equivalent to approximately 850 million barrels of oil.

Analysts said higher oil prices and a stronger dollar, which has hit currencies of many large crude importers, could affect demand growth in 2019.

Looming Iran Sanctions

For now, the focus is on the US sanctions against Iran’s oil exports, which is due to take effect on November 4 and are formed to reduce crude exports from the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC).

A number of significant buyers in India and China have indicated to cut purchases of Iranian oil. China’s Sinopec announced that it had halved its loadings of Iranian oil last month.

Analyst Edward Bell stated that if Chinese refiners do comply with US sanctions more fully than expected, then the market balance could tighten even more aggressively.

On Saturday, US President Donald Trump have talked to Saudi Arabia’s King Salman about the efforts being performed to maintain supplies to keep oil market stability and global economic growth.

Head of trading for Asia-Pacific at futures brokerage in Singapore Stephen Innes said even if Saudi Arabia, the world’s biggest oil exporter and OPEC’s de-facto leader, wanted to grant Trump’s wishes, it is uncertain how much spare capacity the kingdom has.

With around 1.5 million barrels per day (bpd) Iranian oil expected to go offline on November 4, prices could soar with the $100 per barrel price tag indeed a reasonable-sounding target if investors doubted Saudi Arabia’s ability to respond with enough additional output, according to Innes.

Saudi Arabia is expected to add production to the market to offset losses in Iranian output. Two people with knowledge of the OPEC policy stated that Saudi Arabia and other OPEC and non-OPEC producers had talked about a possible production increase of about 500,000 bpd.

However, OPEC and other major oil producers have so far dismissed any immediate official raise in production.

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