Oil rallies as Iran sanctions kick in

Oil rallies as Iran sanctions kick in

Oil pumps are seen at sunset outside Vaudoy-en-Brie, near Paris, France April 23, 2018.

It comes a day after an expert said that prices could rise to more than $90 a barrel following the fresh U.S. sanctions against Iran, which is the world's fifth-largest oil producer.

Iranian President Hassan Rouhani said he had support from the Europeans, China and Russian Federation in regard to a United Nations -backed nuclear agreement that offers sanctions relief in exchange for peaceful commitments from Tehran.

U.S. West Texas Intermediate (WTI) crude futures CLc1 settled 16 cents, or 0.2 percent, higher at $69.17 a barrel, down from an earlier high of $69.83. The sanctions did not include Iran's oil exports.

Mr Trump's sanctions follow the withdrawal of the United States from the Iran nuclear deal earlier this year.

Last week, the American Petroleum Institute (API) reported a build of 5.59 million barrels of crude oil.

Iran's oil industry is expected to be hit in the next round of economic penalties against the country, set to take effect in November.

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Oil rose on Monday after Saudi crude production unexpectedly fell in July and U.S. drilling appeared to slow, although the price is still nearly 10 percent below its 2018 high of more than $80 a barrel. Many analysts have said that this time, the negative impact on Iranian oil trade will be less significant, and Iran will lose only half of the previous loss.

"You can not order 2 million barrels like ordering a coffee somewhere", Beat Wittmann, a partner at financial consultancy Porta Advisors, told CNBC recently. With U.S. sanctions snapping back on Tuesday, however, U.S. President Donald Trump said any company working with Iran would be isolated.

WTI has resistance at $69.64 to $70.42 and support at $67.00 to $66.81. All countries must stop importing Iranian oil by then, the State Department said in June, or face sanctions. The Saudi production data came as surprise to traders at the start of this week, presuming that Saudi production would have risen in July given the pledges from Russian Federation and the Organization of the Petroleum Exporting Countries where they had supposedly agreed in late June to begin ramping up crude output after more than twelve months of curbing output.

"The market continues to price in geopolitical risk from the reimposition of sanctions by the US on Iran", said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut.

But new data released on Monday showed Saudi Arabia's oil production fell in July by 200,000 bpd from the month earlier.

Traders will now look ahead to the weekly API's Weekly Statistical Bulletin today and then the USA inventory data from the Energy Information Administration.