Global oil prices bounced higher Monday after the U.S. State Department granted a waiver to China to purchase crude from Iran as the first day of sanctions imposed by President Donald Trump came into effect.
U.S. Secretary of State Mike Pompeo called the sanctions "the toughest sanctions ever put in place on the Islamic Republic of Iran", but his department noted Friday that waivers had been issued to at least eight importing nations -- including China, India, South Korea, Turkey, Italy, Greece, Japan and Taiwan -- as the first day of ban of the purchase of Iranian crude kicked-in at midnight last night. The Monday market moves trimmed the quarter-to-date decline for U.S. oil prices to around 14% amid a consistent build-up in U.S. crude stocks and near-record production rates from Russia, Saudi Arabia and the United States have keep markets awash with oil and push prices mid-August lows.
Brent crude contracts for January delivery, the global benchmark, were seen 42 cents higher from their Friday close in New York and changing hands at $73.25 per barrel while WTI contracts for December, which are more tightly liked to U.S gas prices, were marked 17 cents lower at $63.31 per barrel.
Iranian President Hassan Rouhani said the sanctions were imposed by his country's "enemy" in order to target "out people" and vowed to break them, while the EU, France, Germany and the United Kingdom repeated an earlier statement condemning the unilateral move by President Donald Trump to both impose the sanctions and withdraw from a treaty that was designed to limit Tehran's nuclear weapons program.
"Our aim is to protect European economic actors who have legitimate commercial exchanges with Iran, in line with European legislation and the United Nations' Security Council resolution 2231," the nations said in a statement Monday.
Last week, the U.S. Energy Information Administration said U.S. crude inventories hit 426 million barrels last week and the output rates of the world's three biggest producers -- Saudi Arabia, Russia and the United States -- which are currently pumping 33 million barrels of crude each day, can meet nearly a third of worldwide demand.
Data from China, the world's biggest energy importer, indicating further slowing for the world's largest economy this morning as activity in its key services sector eased to the slowest pace since September 2017, mirroring data last week which showed manufacturing activity fell to past a one-year low as orders dried up in the wake of the ongoing trade war between Washington and Beijing.
"Producers pumping at will together with a clouded outlook for demand and reduced concerns about Iran sanctions has raised the question of whether we have seen a fundamental shift in the market," said Ole Hansen, head of commodity strategy at Saxo Bank. "In order to gauge whether this is the case, the market will be watching closely the price behaviour as WTI approaches $60/barrel and particularly Brent at $70/b, a level which has provided resistance and then support on several occasions since January."