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Harsher Sanctions

When Trump in May announced plans to reimpose sanctions on Iran’s oil exports, the market estimated a cut of about 300,000 to 700,000 barrels a day, said Trafigura Group co-head of oil trading Ben Luckock. However, the consensus has now moved to as much as 1.5 million barrels daily as the U.S. is “incredibly serious” about its measures, he said.

Iran’s production “is going to be significantly less than it was, and probably lower than most people expected when the sanctions were announced,” Luckock said at the APPEC event. He sees US$90 oil by Christmas and US$100 in early 2019.

Brent crude, the benchmark for more than half the world’s oil, rose 2.5 per cent to US$80.56 a barrel at 11:40 a.m. in London, after earlier jumping to the highest level since November 2014.

OPEC isn’t just grappling with U.S. sanctions cutting Iranian supply. Output in Venezuela is also slumping due to an economic crisis. The biggest source of new global supply, U.S. shale, is also experiencing growing pains as pipeline bottlenecks and workforce issues hamper growth.

OPEC Waits

For all these urgent supply pressures, the world’s largest oil producers adopted a sit-back-and-wait approach at their meeting in the Algerian capital on Sunday. Saudi Arabia, Russia and the United Arab Emirates insisted they had the spare capacity to satisfy the market’s needs, but wouldn’t tap it preemptively.

“Our plan is to meet demand,” said Saudi Energy Minister Khalid Al-Falih. “The reason Saudi Arabia didn’t increase more is because all of our customers are receiving all of the barrels they want.” The kingdom does expect to pump more in September and increase again in October, he said, without pledging specific volumes.