US Softens Stance On Countries Buying Iranian Oil

Institutional Positioning Data per CFTC Commitment of Traders Favors Crude Bulls

Saudi Arabia's plans to pump up to 11 million barrels of oil per day (bpd) in July would mark a new record, an industry source familiar with Saudi oil production plans told Reuters on Tuesday.

Meanwhile, "there is no surplus capacity for countries such as Saudi Arabia and the United Arab Emirates to supply oil for a long term", the official pointed out.

The State Department official, who spoke on condition of anonymity, said the US will be talking in a week or so "with our Middle Eastern partners to ensure that the global supply of oil is not adversely affected by these sanctions".

"The sanctions are trying to isolate Iran a bit more, and that potentially cuts more oil off from the overall global arena as a whole", said Mark Watkins, a regional investment strategist at U.S. Bank Wealth Management.

It is true that U.S. shale producers are also producing at record levels, however even here there are capacity constraints, which means that the White House may have to decide whether it wants full compliance with its sanctions in the timescale stated, which seems unlikely, and a gasoline price heading up to $4 a gallon ahead of midterm elections, or whether they want to be more flexible, less a backlash from the United States consumer.

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The move higher in prices has also started to close the gap with Brent crude prices nearly halving the gap from over $11 earlier this month to just under $6 now. The State Department official said allies in Europe and Asia already had been warned, and trips to China, India and Turkey were in the works, according to The Wall Street Journal. USA crude production is approaching 11 million barrels per day (bpd), and Saudi Arabia expects to match that in coming months as well.

"On the other hand, China, India, and Turkey will likely balk at significant cuts to imports by November". Italy's Saras refinery is considering no longer buying Iranian oil because its banks don't want to finance such trades even before the November 4 deadline, according to company officials. Iran is India's third-largest oil supplier behind Iraq and Saudi Arabia. Economic concerns in the country have been aggravated by the Trump Administration's exit from the 2015 nuclear accord. In the latest May tally, Iranian oil imports dropped to 6 million barrels, down 27 percent from a year earlier. Syncrude's oil sands facility was offline at least through July, after a power outage last week locked in 350,000 bpd.

OPEC, the organisation that triggered the oil shock of 1973 by restricting supplies to countries supporting Israel in the Yom Kippur war, once controlled 40 percent to 50 percent of the world's oil supply and commanded the full attention of markets. The shale producers can't ramp up as supply constraints and bottlenecks keep them in a poor position to try to fill the void.

According to the report of the U.S. Energy Department, published on Wednesday, oil reserves in the country fell by 9.89 million barrels last week.

Russia's Novak said today that OPEC/NOPEC could gradually reverse up to a total of 1.5 million barrels per day of production.

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