Last month, Indian buyers lifted purchases of Iranian crude to 502,000 bpd, up 111,000 bpd over August, in "a last gasp" of purchases "before sanctions actually hit", a US -based trader said, adding that those additional barrels displaced USA crude.
Oil markets are looking to OPEC and Russian Federation to make up shortfalls in supply. Supply losses from Iran to Venezuela continued to rattle markets, boosting volatility and driving prices higher.
This was engineered by worries over a slump in world supply as USA sanctions whittle away at Iranian crude exports.
Oil prices remain near four-year peak on rising doubts about the capability of Saudi Arabia and other oil producers to substitute the cuts in Iran's crude exports once the US imposes oil sanctions on the Islamic republic on November 4.
U.S. President Donald Trump signed an executive order on May 8 to re-impose sanctions on Iran and abandoned the nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA) that came into force in 2015 through joint efforts of the U.S., the U.K., France, China, Russia, Germany and the European Union.
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Despite this, traders said prices were held back by a strong dollar which makes oil imports more expensive for countries using other currencies domestically, as well as by climbing supply in the United States. The contract closed down 0.1 percent Tuesday after rising to the highest close since November 24, 2014 in the previous session. Total volume traded was about 13% above the 100-day average.
Brent for December delivery was fetching around $85.30 per barrel in late London business versus $81.50 per barrel at the same time the previous week. Trump in July tweeted without evidence that Saudi Arabia would increase its production "maybe up to 2,000,000 barrels" a day. US production, which sits at a record 11.1 million bpd, can not replace Middle East crudes, such as Iranian grades, in Asian refineries. The kingdom has lifted production nearly to a record and may raise it again next month, although doing so will infringe on available spare capacity, limiting Saudi Arabia's ability to react to other supply shocks. Meanwhile, the industry-funded American Petroleum Institute was said to report stockpiles rose by 907,000 barrels last week.
Official weekly government data is due from the Energy Information Administration (EIA) on Wednesday.
In the US, crude inventories are estimated to have increased 1.5 million barrels last week, according to a Bloomberg survey of 13 analysts.