Oil prices steadied on Tuesday after falling more than 2 per cent in the previous session as investors assessed the impact of fresh US sanctions against Iran and the possible effect on global crude supply.
Brent crude futures fell 9 cents, or 0.1 per cent, to USD 92.16 a barrel by 0104 GMT. US West Texas Intermediate (WTI) crude was up 1 cent to USD 85.02 a barrel.
Both benchmarks declined more than 2 per cent on Monday, with US crude falling to a one-week low after a rally over the previous two weeks.
The latest US measures have put Iran’s oil trade and shipping networks in focus, but experts said the immediate impact on crude prices has been limited.
US Sanctions Target Iran’s Oil Trade
The United States on Monday imposed sanctions on nearly 60 entities, individuals and vessels over their alleged links to Iran’s military activities, procurement networks and petroleum and petrochemical trade. The measures were announced under “Operation Economic Outcast”.
According to the US State Department, the sanctions are aimed at restricting revenue generated by the Iranian regime and targeting networks supporting its military activities.
The measures were issued under Executive Orders 13846 and 13949, which target Iran’s petroleum revenue and alleged conventional arms proliferation.
The latest action also targets Iran’s “dark fleet” of oil tankers and international intermediaries involved in the sale and transportation of Iranian petroleum, petroleum products and petrochemicals.
This has raised questions over whether tighter restrictions could reduce Iranian oil flows and put upward pressure on global crude prices.
Crude Falls Despite Fresh Sanctions
Despite the announcement of the sanctions, crude prices fell more than 2 per cent on Monday. International market expert Ajay Bagga said the market appeared to be seeing a “sell the rumour, buy the fact” situation.
He said the US has given countries trading with Iran some time to wind down their business. He also noted that it was not yet clear whether China would be excluded from the sanctions.
China is Iran’s biggest trading partner, making its response important for the oil market, Bagga said. According to him, Iran’s other major trading partners include Turkey and Iraq, while India’s trade with Iran is relatively small.
Bagga said the lack of clarity over the exact implementation of the sanctions means the market is still assessing their real impact.
Risk Premium Remains Key For Oil
Bagga said the recent rise in crude prices was also driven by an increase in the risk premium. He pointed to reports of crude being moved through the Gulf of Oman, with smaller vessels transferring oil to very large crude carriers.
At the same time, he said there is an oversupply situation in the Gulf. “If oil starts moving out, the market could become oversupplied,” Bagga said, adding that this could put pressure on prices.
He also noted that large banks are giving a wide range of forecasts for Brent crude, depending on how the supply situation develops.
Bagga said the key issue for the oil market is the actual availability of crude rather than the headline impact of sanctions.
For now, the market has not reacted with a sharp rise in crude prices following the US action.
Strait of Hormuz Crucial For Crude
Market expert Anil Singhvi said the Strait of Hormuz remains the biggest factor for crude prices. He said the US sanctions had not resulted in a major immediate impact on crude.
According to Singhvi, October crude futures were trading in the USD 92-93 range, while November futures were around USD 90-91. Singhvi said the direction of crude will depend significantly on whether the Strait of Hormuz remains closed or reopens.
“The day Hormuz opens, crude will fall,” Singhvi said. He added that as long as the waterway remains closed, crude could continue to trade at higher levels. The level could move to USD 80, USD 85, USD 90 or USD 95 depending on developments, he said.
Singhvi said investors should be prepared for crude prices around USD 90 if the Strait of Hormuz remains closed.
What Experts Expect From Crude Oil
The latest sanctions have increased pressure on Iran’s oil trade, particularly through restrictions on tankers and intermediaries involved in transporting Iranian crude and petroleum products.
However, the initial reaction in the oil market has been limited, with both Brent and WTI falling sharply on Monday before stabilising on Tuesday.
For Bagga, the key questions are how the sanctions are implemented, whether China is affected and how much Iranian oil continues to reach the international market.
For Singhvi, the Strait of Hormuz remains the main trigger for crude prices. A reopening of the waterway could bring prices lower, while continued disruption could keep crude at higher levels.
Brent was trading at USD 92.16 a barrel and WTI at USD 85.02 a barrel in early Tuesday trade. The next move in crude will therefore depend on whether the US sanctions lead to an actual reduction in Iranian oil supplies and how the situation around the Strait of Hormuz develops.
