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Crude sets six-month high as market digests potential loss of Iranian barrels

New York — Oil futures settled higher for a second session Tuesday, with crude notching fresh six-month highs as the market weighed global supply outlooks in the wake the US ending Iran sanctions waivers.

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ICE June Brent settled up 47 cents at $74.51/b and NYMEX June WTI up 75 cents at $66.30/b at the market close.

Crude prices have trended higher this week as the market works to account for the potential impact that a complete cessation of Iranian exports would have on global crude supply after the White House announced it would end all waivers from oil sanctions after their expiration on May 2. The end of Iran oil waivers could take as much as 1.2 million b/d of crude off the market during the second half of 2019, according to S&P Global Platts Analytics data.

This supply constriction has been generally bullish for crude prices, but the extent of the gains have been somewhat mitigated by pledges that US, Saudi Arabia and UAE producers would be able to fill any supply shortfall.

But any increase in production by those two core OPEC countries and other like-minded members could somewhat hamstring the organization's ability to respond to other supply outages, if it is to maintain its role as the global swing supplier.

OPEC in March pumped 30.23 million b/d, its lowest level in more than four years, due in large part to power outages in Venezuela and production discipline by Saudi Arabia, according to the latest S&P Global Platts OPEC production survey.

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Brian Hook, US Department of State special representative for Iran said Tuesday that tougher Iran sanctions enforcement would essentially lead to an end of the 1.2 million b/d OPEC/non-OPEC cuts.

Still, global oil markets are adequately supplied with "comfortable" levels of spare production capacity, the International Energy Agency said Tuesday.

The Paris-based energy market watchdog estimated global spare production capacity has recently risen to 3.3 million b/d, with 2.2 million b/d held by Saudi Arabia and around 1 million b/d by the United Arab Emirates, Iraq and Kuwait.

Brent forward structure continued to strengthen Tuesday, with the one-year spread widening to $4.94/b.

The US on Monday said sanctions waivers granted to eight major buyers of Iranian oil would expire on May 2. The US, which has accused Iran of destabilizing activities in the Middle East, said it intends to impose "maximum economic pressure" on Tehran through its sanctions, which are aimed at blocking all of the country's oil exports.

A key question facing the market now is the extent to which major buyers of Iranian crude, specifically China and India, which have been respectively importing 400 million-600 million b/d and 200 million-300 million b/d in recent months, will comply with the US sanctions, analysts said.

China has made representations to the US about its decision not to extend any waivers on sanctions against Iran and the impact on energy markets, Foreign Ministry spokesman Geng Shuang told a press conference in Beijing Tuesday. Geng previously told reporters that China is opposed to unilateral sanctions being imposed by the US on Iran, and its cooperation with Iran should be respected.

But Indian state-run refiners will step up crude oil imports from countries such as Mexico and Iraq, to make up for any supply losses arising from Washington's decision to not extend waivers on buying Iranian crude, trade and government sources said (See story, 0425 GMT).

NYMEX May ULSD settled up 1.40 cents at $2.1180/gal and NYMEX May RBOB was 18 points higher at $2.1316/gal at market close.

-- Chris van Moessner, christopher.vanmoessner@spglobal.com

-- Edited by Derek Sands, newsdesk@spglobal.com