Oil Stays Flat as North American Trade Deal Reassures Investors

King Salman bin Abdulaziz

Oil prices fell but hovered near their highest level since November 2014 on Tuesday, with Brent crude not far off from its four-year highs booked the previous day as markets anticipate tighter supply once United States sanctions against Iranian oil exports take effect next month.

Both crude benchmarks closed almost 3% higher Monday, with the USA benchmark settling at a four-year closing high of $75.30 a barrel. WTI has risen around 18% since mid-August.

The worldwide crude oil benchmark lost 37c to $84.61 a barrel by 12pm GMT after reaching a new four-year high of $85.45 in the previous session.

The 15-member Organisation of the Petroleum Exporting Countries pumped a 2018 high of 32.85 million barrels per day in September, according to the Reuters monthly survey, up by 90,000 bpd from August's revised level.

ANZ bank said on Monday that "the market is eyeing oil prices at 100 dollars per barrel". Some market players are predicting the new US-Canada-Mexico free-trade deal will spur more demand.

Bijan Zanganeh said in an interview on state television that the Organization of the Petroleum Exporting Countries lacked the capacity to produce more oil to make up for the drop in Iranian sales.

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Crude prices will likely reach $100 per barrel for the first time since 2014, and OPEC has no leverage to prevent such a scenario, an analyst has warned. President Donald Trump and King Salman bin Abdulaziz of Saudi Arabia spoke on the phone Saturday and discussed efforts to maintain supplies to ensure stability of the market and growth of the global economy, Al Arabiya TV reported. OPEC itself trimmed its forecast for 2019 global oil demand growth, emphasizing the downside risk.

Washington's sanctions are set to start on November 4, and analysts say there may not be enough spare production capacity in the short-term to meet demand, potentially requiring large storage drawdowns.

Several major buyers in India and China have signalled that they would cut purchases of Iranian oil.

However, China's Sinopec is halving loadings of crude oil from Iran this month, in a sign that pressure from Washington is having an effect.

Head of trading for Asia-Pacific at futures brokerage in Singapore Stephen Innes said even if Saudi Arabia, wanted to grant Trump's wishes, it is uncertain how much spare capacity the kingdom has. A survey by The Wall Street Journal indicates analysts, on average, are expecting that US crude oil inventories rose by 1.3 million barrels last week.

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