Oil heads for third weekly decline, but Iran sanctions limit losses

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The global benchmark has lost nearly $10 a barrel since hitting a high of $86.74 on October 3.

On Wednesday, crude oil futures closed higher by $0.39, or 0.6%, at $66.82 a barrel, after having plunged to a two-month low a session earlier. In recent weeks, the oil market has carefully watched growing strains in the U.S. -Saudi relationship over the killing of Saudi journalist Jamal Khashoggi. Faltering confidence in the strength of the global economy comes as swelling American oil stockpiles spark fears about a re-emergence of a price-killing glut.

Prices got some support when two sources said on Friday Iraq will stop trucking crude oil from its northern Kirkuk oil field to Iran in November to comply with US sanctions. West Texas Intermediate, the USA benchmark, traded at $66.77 per barrel, or 0.7 percent lower. Yet, while oil companies are finally starting to prosper, the sharp crude oil price drop may cause many to rein in spending plans.

"If global demand contracts more than we think, that doesn't bode well for oil demand".

Majid Reza Hariri, an official with the Iran-China Chamber of Commerce and Industries, denied the report, saying the Bank of Kunlun has not actually halted service to Iran's oil exports, but rather has notified commercial account holders that in case they have an open letter of credit or unfinished payments, they should complete them by November 1.

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US commercial crude oil stockpiles rose for a fifth consecutive week last week, increasing by 6.3 million barrels to 422.79 million barrels, the Energy Information Administration said on Wednesday.

Saudi Energy Minister Khalid al-Falih said this week, according to Russian news agency TASS, that the country would bump up its production to 11 million barrels a day to cool off the oil market, although some oil observers wonder if the kingdom would be able to fulfill this promise.

In oil, WTI has fallen almost 10 percent so far this month, while Brent is down almost 9 percent.

US sanctions on Iranian crude oil exports would take effect on November 4, prompting more countries to cut imports from Iran.

"Of particular note, the crude markets had been trading in what is known as contango for over a year and just last week, finally moved into a normal backwardation mode, where the front months are trading a lower prices than the back months, which represents a healthier, price level", Thorpe added.