Oil falls on concerns over escalating trade row

Iran's Minister of Petroleum Bijan Zangeneh addresses the 4th Iranian Petroleum and Energy Club Congress & Exhibition in Tehran Oct. 16 2018

Iran's Minister of Petroleum Bijan Zangeneh addresses the 4th Iranian Petroleum and Energy Club Congress & Exhibition in Tehran Oct. 16 2018

Crude oil futures ended higher on Friday with investors weighing the possible impact of US sanctions on Iran's oil exports on crude supply in the market.

More seriously for Saudi Arabia and other Arab oil producers, the surge in prices, which rose again after the Iranian revolution in 1979, resulted in permanent demand destruction and encouragement of alternative suppliers.

North Atlantic Treaty Organisation member Turkey depends heavily on imports to meet its energy needs and neighboring Iran has been one of its main sources of oil because of its proximity, the quality of its crude, and favorable price differentials.

The fallout of the Trump administration's reaction to the S-400 deal featured in the wide-ranging discussion between Defence Minister Nirmala Sitharaman and USA counterpart James Mattis in Singapore on Friday, but sources told The Indian Express that the offer of a CAATSA waiver in exchange for buying F-16 fighter jets was made earlier this month.

With about two weeks to go before the second round of U.S. sanctions on Iran come into effect, India seems to have worked out an arrangement with both countries to protect its national interests.

President Donald Trump said on Thursday he presumes missing Saudi journalist Jamal Khashoggi is dead and that the United States response to Saudi Arabia will likely be "very severe" but that he still wanted to get to the bottom of what exactly happened. Oil traders are awaiting details from the Trump administration on potential waivers that would allow countries to continue buying at least some oil from Iran.

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An SPR release is a one-off affair, and many analysts - and even the U.S. Secretary of Energy Rick Perry - have said that it would do very little to ease a supply shortage. It is hard to simply turn off oil production, and with onshore storage filling up, Iran has been forced to store oil at sea.

Already, a million barrels of daily Iranian oil has vanished from the global markets.

"We view that crude market risks are heavily skewed to the upside and whilst we are not explicitly forecasting Brent to rise to $100 per barrel, we see material risks of this coming to fruition", Japanese bank Mitsubishi UFJ Financial Group said in a note to clients.

"In the end, the impact could be higher, or it could be lower", Wittner wrote.

India Thursday said it was engaged with the US, Iran and other stakeholders on the issue of American sanctions on import of Iranian oil which will come into effect from November 4. China's imports from Iran fell to 430,000 bpd in September, the lowest amount since 2016. Stockpiles have risen more than 22 million barrels over the past four weeks as domestic drillers ramp up production, while refineries halt operations for seasonal maintenance. That's up from around 9.9 million barrels in the first quarter.

"We just have a hard time believing the Saudis can ramp up production meaningfully in the next 30 days on a sustainable basis", said Michael Tran, director of global energy strategy at RBC Capital.

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