Crude Rises as US Drillers Cut Rigs, Iranian Sanctions Loom

Oil prices climbed on Monday, driven by stagnated drilling activity in the US and investor’s optimism over a potential drop in supply prompted by the upcoming US sanctions against Iran’s crude exports.

International benchmark Brent crude futures for November delivery rose 0.5 percent to $77.28 per barrel, while October contract West Texas Intermediate (WTI) advanced 0.3 percent to $67.97 per barrel.

Crude’s gain is built on lower exports from Iran due to US sanctions, capped US shale output growth, instability in production in countries like Libya and Venezuela and no major negative impact from a US-China trade war on demand in the next 6-9 months, according to oil strategist Harry Tchilinguirian.

Tchilinguirian added that they see Brent above $80 under the higher oil price scenario.

US Oil Drillers Bring Rig Count to 860

US energy companies has cut oil rigs last week as the rig count stalled over the past three months along with oil prices.

Reducing the rig count by two in the week to September 7, the total number of rigs drilling for crude in the US now stands at 860. US drilling have stagnated since May, reflecting increases in well productivity but also holdups and infrastructure constraints.

The US rig count, an early indicator of future output, climbed by one in the previous month after adding three rigs in July and losing one in June. However, the recent count was higher than last year when 756 rigs were active.

US crude futures have average $66.47 a barrel so far this year, compared with averages of $50.85 in 2017 and $43.47 in 2016.

Potential Drop in Iranian Oil Exports
Meanwhile, Iranian crude oil exports continued to signal a drop ahead of renewed US sanctions taking effect in November.

Even though several importers of Iranian oil have expressed their opposition about the sanctions, only a few of them appeared to be ready to challenge the US.

A US energy consultancy firm said the companies they have spoken to decided not to take the risk since US financial penalties and the loss of shipping insurance scare everyone.

While US President Donald Trump’s administration is calling for countries to cut imports from Iran, it is also requesting other producers to increase output to curb prices.

US Energy Secretary Rick Perry is set to meet counterparts from Saudi Arabia and Russia on Monday and Thursday respectively, as the US urges oil-producing and exporting countries to maintain high production for a couple of months before it is due to renew sanctions on Iran’s oil exports.

Perry will meet Saudi Arabia Energy Minister Khalid al-Falih and other officials from the kingdom in Washington on Monday.

As the trade conflict between the US and other big economies and the weakness of emerging markets continue, investors have grew concerned over potential impact of the situations on crude demand.

Trade wars and especially rising interest rates can spell trouble for the emerging markets that drive oil demand growth, according to the consultancy firm.

Still, the energy consultancy said chances of much lower prices was fairly low as the Organization of the Petroleum Exporting Countries (OPEC) might revise output to balance prices.

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