Oil Rises as U.S. Sanctions on Iran Tighten Supply

Oil prices rose on Friday as U.S. sanctions on Tehran squeezed Iranian crude exports, tightening supply even as other key exporters increased production.

Global crude oil benchmark Brent was up 60 cents at $82.32 a barrel by 1340 GMT. The contract hit a four-year high of $82.55 this week but has been fairly stable during the third quarter, gaining around 3 percent since the end of June.

U.S. light crude was up 10 cents at $72.22 a barrel. It is up more than 3 percent this month but down 2.7 percent since the end of June.

"The fall in Iranian production is set to intensify once the second round of U.S. sanctions come into effect in November," said Abhishek Kumar, senior analyst at Interfax Europe.

A new round of U.S. sanctions on Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), kick in on Nov. 4.

Washington is demanding that buyers of Iranian oil cut imports to zero to force Tehran to negotiate a new nuclear agreement and to curb its influence in the Middle East.

Other OPEC countries have been increasing production in recent months, but global inventories have been falling as supply tightens, analysts say.

Saudi Arabia is expected to add extra oil to the market over the next couple of months to offset the drop in Iranian production.

Two sources familiar with OPEC policy told Reuters that Saudi Arabia and other producers had discussed a possible production increase of about 500,000 barrels per day (bpd) among OPEC and non-OPEC producers.

However, ANZ said in a note on Friday that major suppliers were unlikely to offset losses because of the sanctions estimated at 1.5 million bpd.

At its 2018 peak in May, Iran exported 2.71 million bpd, nearly 3 percent of daily global crude consumption.

Looking to 2019, Saudi Arabia is concerned that rising U.S. shale production could create another glut, especially if a stronger dollar and weaker emerging market economies reduce global demand for oil, sources familiar with OPEC policy say.

OPEC forecasts that its non-OPEC rivals, led by the United States, will increase output by 2.4 million bpd in 2019 while global oil demand should grow by only 1.5 million bpd.

U.S. crude production hit a record high of 11.1 million bpd last week, the U.S. Energy Information Administration estimated.

But international crude markets could still face a shortfall:

"Although U.S. oil output is rising, there are early signs of pipeline and shipping constraints, which will limit how much of that is traded globally," Kumar said. 

Reporting by Christopher Johnson in LONDON and Meng Meng and Aizhu Chen in BEIJING