Oil rises as USA sanctions on Iran stoke supply worries

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The WTI Crude Oil market tried to rally again during the day on Tuesday, but just like the Monday session we ended up finding sellers close to the $70 level again and rolled over.

Sanctions on Iran and additional support from signs of declining oil inventories in the United States pushed the price of oil higher early Tuesday.

The reimposed sanctions target Iran's US dollar purchases, metals trading, coal, industrial software and its auto sector.

Sanctions that went into force on Tuesday target Iran's access to the USA dollar, its trade in gold and other precious metals, and other financial measures tied to the national currency, the rial.

"It certainly is a reminder to everyone that the U.S.is serious about sanctions, and it's doubtful they will grant waivers", said John Kilduff, partner at Again Capital Management in NY.

And further sanctions are set to be imposed by the U.S. in November.

"The US seems hell-bent on regime change in Iran", said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

United States investment bank Jefferies said in a note that "the Saudi and Russian production surges appear to be more limited" than initially expected, adding that bullish market sentiment was also fuelled by the imminent reinstatement of U.S. sanctions against Iran.

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Exports to China rose to 799,452 bpd in July from 722,100 bpd in June, while Iranian oil sales to India increased by more than 40,000 bpd from June to 706,452 bpd in July, S&P Global Platts data shows. "The reports that Saudi Arabia's production actually dropped in July continue to provide support for the market".

That came despite a pledge by the Saudis and top producer Russian Federation in June to raise output from July, with Saudi Arabia promising a "measurable" supply boost.

Meanwhile, other major producers are ramping up their output. Weekly data from the American Petroleum Institute for US inventories is due later on Tuesday at 4:30 p.m. EDT, followed by the EIA's report on Wednesday morning.

"The price may also be finding support from oil transport infrastructural problems in the U.S.", said Commerzbank analysts in a note".

US crude stockpiles were expected to have dropped 3.3 million barrels last week. Some analysts warned that a global heat wave could also now affect oil demand.

This is not about bombarding the market with oil and pushing the price into the $50s, it is about preparing the market and easing the transition, he said.

This mostly affects demand for power fuels such as thermal coal and natural gas.

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