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Crude oil futures rise despite likely US stock build amid supply concern

Singapore — Crude oil futures were up during mid-morning trade in Asia Tuesday despite an expected mild build in US crude inventories as ongoing supply concerns continue to push prices higher.

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At 10:48 am Singapore time (0248 GMT), the December ICE Brent crude futures was up 31 cents/b (0.37%) from Monday's settle at $84.22/b, while the NYMEX November light sweet crude contract was up 31 cents/b (0.42%) at $74.60/b.

Analysts surveyed by S&P Global Platts Monday were looking for US crude inventories to have increased by 1.61 million barrels for the week ended October 5 amid lower refinery utilization rates and weak export activity.

Analysts surveyed by Platts expected refinery runs to have dropped by 0.45 percentage points to 89.95% of total capacity last week. Total refinery utilization has been above 90% since early-March.

Preliminary data on last week's US inventory data is due for release from the American Petroleum Institute later Tuesday, while the official report from the US Energy Information Administration is due for release Wednesday.

Despite a mildly bearish expectation on US crude inventory levels, prices continued to find support from the supply concerns surrounding the impact of the Iranian sanctions, set to be implemented in less than a month.

"Oil prices have been rising, due to concerns about a severe shortage from looming Iranian sanctions and reduced supply from Libya and Venezuela," ANZ analysts said in a note Tuesday.

According to data from Platts tradeflow software cFlow, Iran's observed oil exports dropped to a new low in September, standing at 1.7 million b/d as compared with 1.92 million b/d in August.

The volumes marked the lowest exports by Iran in at least two and a half years before the West lifted sanctions in January 2016 and show its key customers are already making significant cuts to their imports before US secondary sanctions kick in November 5.

While these numbers are compiled from publicly visible shipments that can be observed through vessel tracking, a number of clandestine deliveries may also still be happening, according to shipping and trading sources.

Analysts also noted that uncertainty around the possibility of allowing waivers for some countries importing Iranian crude were also injecting volatility in prices.

Two Indian oil companies have made nominations to import Iranian oil in November despite the threat of sanctions, India's oil minister Dharmendra Pradhan said Monday. He said India had not yet heard if the US will grant any sanctions relief.

A State Department official confirmed Monday that the US is "in the midst of an internal process to consider [significant reduction exemption] waivers for individual countries."

"The US is apparently considering exemptions from the sanctions. It appears that consumer countries are to be given more time after all to replace their oil shipments from Iran so long as they at least reduce them significantly, " Commerzbank analysts said in a note. "One of the favored countries appears to be India."

"If other consumers such as the EU, Japan and South Korea are also allowed to continue buying Iranian oil, concerns about supply tightening towards the end of the year would be reduced considerably," they added.

As of 0247 GMT, the US Dollar Index was down 0.02% at 95.445.

--Avantika Ramesh, avantika.ramesh@spglobal.com

--Edited by Norazlina Juma'at, norazlina.jumaat@spgobal.com