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| 21 August, 2018

Oil edges higher as Iran sanctions outweigh trade concerns

The full impact of the Iran sanctions is not yet clear.

Image used for illustrative purpose.
Pump jacks are seen in the Lost Hills Oil Field, California April 20, 2015.

Image used for illustrative purpose. Pump jacks are seen in the Lost Hills Oil Field, California April 20, 2015.

REUTERS/Lucy Nicholson

LONDON- Oil rose on Tuesday, buoyed by the prospect of price support from U.S. sanctions on Iran, although with concern brewing about the outlook for demand, particularly in light of the trade dispute between Washington and Beijing, gains were limited.

Brent crude futures were last up 49 cents on the day at $72.70 a barrel by 1230 GMT, while the most active October U.S. crude futures contract rose 43 cents from its last close to $65.85 a barrel.

"Prices are being supported by the prospect of lower oil supply from Iran," Commerzbank said in a note.

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The full impact of the Iran sanctions is not yet clear.

While most of Europe's energy firms are likely to fall in line with Washington, China has indicated that it will continue to buy Iranian oil. 

The Iranian supply cut may also be more than compensated for by production increases outside the Organization of the Petroleum Exporting Countries. 

BNP Paribas said it expected oil production from OPEC, of which Iran is a member, to fall from an average of 32.1 million barrels per day (bpd) in 2018 to 31.7 million bpd in 2019.

Still, traders said overall market sentiment was cautious given the U.S.-China dispute that threatens to undermine global growth and, therefore, consumption of industrial commodities.

"Let us be clear: trade wars, especially between the two biggest economies of the world, are dangerous games that ultimately will impact oil demand and consequently oil prices," PVM Oil Associates strategist Tamas Varga said.

A Chinese delegation is due in Washington this week to try to resolve the dispute, but U.S. President Donald Trump told Reuters on Monday he does not expect much progress and that resolving the disagreement will "take time".

On the supply front, Washington on Monday offered 11 million barrels of sour crude from its Strategic Petroleum Reserve for delivery from Oct. 1 to Nov. 30. The released oil could offset expected supply shortfalls from sanctions against Iran. 

(Additional reporting by Henning Gloystein in SINGAPORE; Editing by Dale Hudson and Louise Heavens) ((amanda.cooper@thomsonreuters.com; +442075423424; Reuters Messaging: amanda.cooper.thomsonreuters.com@reuters.net; Twitter: https://twitter.com/a_coops1))