Oil rises by 1% in a 3-week period as sanctions on Russia and Iran increase

The price of oil rose by about 1% on Friday to a record high for three weeks, as a result of expectations that additional sanctions against Russia and Iran would tighten up supplies. Lower interest rates in Europe or the U.S. may also boost the demand for fuel.

Brent futures were up 67 cents or 0.9% to $74.08 per barrel at 10:55 am EST

. U.S. West Texas Intermediate crude (WTI), which is a blend of oil from Texas and Louisiana, rose by 79 cents or 1.1% at $70.81. Both crudes were heading for their highest closings since November 22.

Brent was on track for a gain of 4% and WTI, a gain of 5%.

Analysts at energy advisory company Ritterbusch and Associates wrote in a report that "this strength is driven by... expectations of tighter sanction against Russia and Iran. More supportive Chinese economic guidelines, Mideast political chaos and prospects for a Fed rate cut next Monday."

The European Union's ambassadors have agreed to impose the 15th package in sanctions against Russia for its war on Ukraine. This will target its shadow tanker fleet. The U.S. may take similar steps.

Britain, France, and Germany said they were prepared to "snap-back" all international sanctions against Iran if needed to stop the country acquiring nuclear weapons.

Chinese data released this week shows that crude imports increased annually in November for the first seven-month period, mainly due to lower prices and stockpiling.

China's crude imports, which are the largest in the world, will remain high until early 2025, as refiners choose to buy more from Saudi Arabia because of lower prices. Meanwhile, independent refiners rush for their quota.

China's stimulus plans were cited by the International Energy Agency as a reason for increasing its forecast of 2025 global oil consumption growth to 1.1m barrels per day.

In November, new bank lending in China was lower than expected. This highlights the weak credit demand of the second largest economy in world. Policymakers have pledged to implement more stimulus measures.

OIL SUPPLY and DEMAND

The IEA predicted an oil surplus next year when non-OPEC+ countries are expected to increase supply by approximately 1.5 million bpd. Argentina, Brazil Canada, Guyana, and the U.S. will be driving this.

OPEC+ is a group that includes the Organization of Petroleum Exporting Countries and its allies, such as Russia.

United Arab Emirates

Bloomberg reports that a member of OPEC+,. plans to reduce oil shipments in early 2019.

Crude oil sold to China at a discount

, a member of OPEC, has risen to its highest level in many years due to U.S. sanctions that have reduced shipping capacity and increased logistics costs. The incoming Trump administration in the United States is expected to increase pressure on Iran.

Investors also bet that the Fed will reduce U.S. interest rates next week and further in 2019. This is after data showed that weekly unemployment insurance claims unexpectedly increased.

The U.S. import price barely increased in November, as the strong dollar helped to offset increases in food and fuel prices.

Four European Central Bank policymakers supported further interest rate reductions provided inflation settles as expected at the bank's target of 2%.

Lower interest rates are good for economic growth. They can also boost oil demand. Reporting by Scott DiSavino and Ahmad Ghaddar, both in New York; Additional reporting by Florence Tan, Siyi Liu, and Siyi Tan in Singapore; Editing and production by Clarence Fernandez and Frances Kerry; Alexander Smith, Louise Heavens, and David Gregorio.

(source: Reuters)