OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange continued higher in early trade Tuesday, with the start of U.S. economic sanctions on Iran overnight, and amid market expectations calling for continued declines in U.S. crude and product inventories when the American Petroleum Institute releases its weekly supply report at 4:30 p.m. EDT Tuesday.
With international crudes traded in U.S. dollar denominations and Iran barred from dealing in the dollar, sanctions are expected to further impede Iran's ability to sell its crude to world oil buyers, as well as trading in precious metals, coal and industrial-related software. The economic sanctions, which will be followed by later oil sanctions in November, have spurred countries to scale back crude purchases under threat of reprisals by the U.S.
"The market is rallying on concern about the start of Iranian sanctions and amid growing doubts about Saudi Arabia's ability to make up for the lost Iranian oil," said Phil Flynn, senior market analyst with Chicago-based Price Futures Group. "The combination of this with expectations for continued drawdowns in U.S. stocks is giving the market support."
Flynn said the current market expectation for Tuesday's supply report from the API is for U.S. crude oil inventories to decline 3.3 million barrels (bbl) and for gasoline stocks to decline 3.0 million bbl, while distillate inventories are expected to show a draw of 1 million bbl.
Near 9:00 a.m. EDT, the September NYMEX WTI contract stood 51 cents per bbl higher at $69.52 per bbl, while the October ICE Brent contract was up 85 cents to $74.60 bbl. September RBOB futures stood 2.51 cents per gallon higher at $2.0902 gallon, while the September ULSD contract gained 2.98 cents per gallon to $2.1691 per gallon.
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