U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher early Tuesday after a late session sell-off on Monday led to the markets giving back their earlier gains.
Prices are being supported by looming U.S. sanctions against Iran’s petroleum industry. However, gains are being capped by signs that increased supplies by other major producers, including the United States and Saudi Arabia, could make up for the disruptions from Iran.
There is evidence that the U.S. planned sanctions against Iran that are supposed to begin in November are already weighing on exports from the country. Washington is threatening severe penalties against any nation that fails to comply with its sanctions. Close allies like South Korea and Japan are already complying. India is also beginning to show signs of falling in line.
Despite the supply tightening, however, there are still worries that Saudi Arabia and Russia will fill in any supply shortages.
On Monday, U.S. Energy Secretary Rick Perry met with Saudi Energy Minister Khalid al-Falih in Washington, the U.S. Energy Department said. The meeting was designed to encourage the Saudis to keep producing at high levels ahead of the renewed sanctions.
Perry is scheduled to meet with Russian Energy Minister Alexander Novak on Thursday in Moscow.
The early price action suggests traders are continuing to bet on supply tightening. The upside target for Brent crude is $77.39 to $77.86. It is currently testing this zone. Trader reaction to this area will set the tone of the market the rest of the week.
The October WTI target zone is $69.13 to $69.66. On the downside, the support zone is $67.65 to $66.76.
Brent is being supported by potential supply shortages due to the Iran sanctions. WTI’s gains are being limited by worries over U.S. supply after the rig count failed to increase last week. Furthermore, investors may be sitting on the sidelines ahead of Tuesday’s American Petroleum Institute weekly storage report and Wednesday’s U.S. Energy Information Administration weekly inventories.