Oil prices jumped over 2 per cent on Tuesday as the market grew more concerned about the global supply of crude as the date for the Trump administration’s reimposition of sanctions against Iranian crude nears.  BP photo.

Oil prices rise as more countries fall in line with Trump demand to cut Iranian crude imports

Oil prices rose on Tuesday, jumping over 2 per cent, as the market grew more concerned that the Trump administration’s re-imposition of sanctions on Iranian crude imports could result in tightened global supply.

In May, US President Donald Trump announced he was abandoning the Iran sanction relief agreement signed by former President Barack Obama in 2015.  Since then, crude traders have priced in a risk premium which reflects expected supply shortages due to the sanctions.

According to Reuters, as the November 4 date for the reimposition of sanctions approaches, the premium has increased.

“The fear is that the sanctions could be so successful that it takes more oil off the market than the OPEC and non-OPEC producers can make up for,” Andrew Lipow, president of Lipow Oil Associates told Reuters.

By the end of Tuesday’s session, Brent crude futures had climbed 2.2 per cent to $79.06/barrel and US West Texas Intermediate crude rose 2.5 per cent, landing at $69.25/barrel.  The Canadian Crude Index was up $1.20 to $40.55.

So far, a number of US allies have complied with the Trump administration’s instructions to cut their imports of Iranian crude, including Japan, South Korea and India.

Despite their demand for allies’ obedience, the US government is hoping oil prices do not rise due to the sanctions.  An increase in prices could weaken economic activity or trigger a slowdown in global growth.

As well, the midterm elections are approaching and higher gasoline prices weigh heavily on the minds of voters.

In an effort to combat the decrease in supply and likely increase in oil prices, US Energy Secretary Rick Perry met with Saudi Arabia’s Oil Minister, Khalid al-Falih on Monday in Washington.  Perry is also slated to meet with Russia’s Energy Minister Alexander Novak on Thursday in Moscow.

TASS news agency reported that Novak said on Tuesday that Russia and a group of Middle Eastern producers which dominate OPEC may sign a new long-term cooperation deal this December.

Novak did not offer any details on the possible pact.

Analysts polled ahead of the data release on US crude stocks predict a decline in US inventories.  On Tuesday afternoon, the American Petroleum Institute will release its crude stock data and on Wednesday morning, the US Energy Information Administration will report its findings.

Also underpinning oil prices was Monday’s attack on the headquarters of Libya’s National Oil Corporation in Tripoli.  Libyan oil production has been hit by attacks in recent years, but last year production recovered to about 1 million barrels per day.

With Middle Eastern markets tightening as the Iranian sanctions near, Asian buyers are hunting down alternative suppliers.  As a result, imports of US crude in South Korea and Japan have hit record levels this month.

However, some US crude exporters who had benefitted from growing trade with China are now looking for new buyers as the ongoing trade war between Washington and Beijing has cut business.