Oil prices topped $85/barrel on Tuesday on concerns about falling Iranian crude exports prior to the Trump administration’s sanctions along with a partial production shutdown in the US Gulf of Mexico as Hurricane Michael approaches.  National Hurricane Center photo.

Oil prices slipped to a low of $82.66 on Monday

Oil prices climbed on Tuesday on data showing a drop in Iranian crude exports ahead of the reimposition of US sanctions.  As well, some oil production has been shut down ahead of Hurricane Michael, which is expected to make landfall on the eastern side of the US Gulf Coast by Wednesday.

By 2:27 p.m., EDT, benchmark Brent crude futures rose $1.08 to $84.99/barrel and US West Texas Intermediate futures were up 67 cents to $74.96.  The Canadian Crude Index was up 24 cents to $33.89.

Reuters reports that according to Refinitiv Eikon tanker data and an industry source, Iranian crude exports dropped to 1.1 million barrels per day (b/d) in the first week of October as buyers scrambled to find new crude sources ahead of the looming sanctions.

An industry source told Reuters that October exports to date are below 1 million b/d.

In April, Iran exported at least 2.5 million b/d.  But in May, President Donald Trump abandoned the 2015 nuclear deal with Tehran and announced the reimposition of sanctions on Iranian crude exports.  The sanctions are set to take effect on Nov. 4.

Iran is OPEC’s third largest producer of crude.

“This rapidly declining availability of Iranian barrels within the anticipatory phase of the oil sanctions could prove to be a powerful bullish force but also one that can quickly subside once these sanctions are fully realized next month,” Reuters reports Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.

Refinitiv Eikon data showed a vessel carrying 2 million barrels of Iranian crude discharged the crude into a bonded storage tank located at the port of Dalian in northeast China on Monday.

During the previous sanctions on Iranian crude exports, Tehran held oil storage at Dalian.  The crude was later sold to South Korean and Indian buyers.

To help offset the production losses due to the sanctions, Saudi Arabia said it would boost its output in November to a record high of 10.7 million b/d.

While the Saudis say they will try to compensate for the losses due to the sanctions, Iranian Oil Minister Bijan Zanganeh said the kingdom’s claim is “nonsense”.

Another factor in rising oil prices is Hurricane Michael which is heading towards the eastern side of the US Gulf of Mexico.  So far, about 20 per cent of oil production has been shut down in preparations for the category three storm which is expected to make landfall on the eastern US Gulf Coast on Wednesday.

Currently, forecasters say the hurricane is expected to miss most major oil-producing assets, but they warn the track could change and widen the impact.

Also on Tuesday, the International Monetary Fund cut its economic growth forecasts for this year and next due to trade tensions and increased import tariffs which are taking a toll on commerce and leaving emerging markets struggling to deal with tighter financial conditions and capital outflows.

“The preponderance of evidence seems to suggest that any talk of slowing demand isn’t going to come fast enough to offset the tight market conditions we’re going to have in the next quarter,” Phil Flynn, an analyst at Price Futures Group told Reuters.