US Secretary of State Mike Pompeo said in India last month that the Trump administration would consider waivers for Iranian oil buyers such as India but they must eventually bring the imports to zero.
Oil dropped below $83 a barrel on Monday, pressured by expectations that some Iranian oil exports will keep flowing after the USA reimposes sanctions, easing a strain on supplies.
The administration is still committed to pressuring the globe to cease Iranian oil imports, the official said.
The first piece of bearish news weighing on prices today is the report that a US government official said on Friday that the country could consider exemptions for nations that have already shown efforts to reduce their imports of Iranian oil.
-Chinese trade war could slow down economic growth and hit oil demand also weighed on the market, traders in Asia said.
This new stance is triggering criticism from some Iran hawks and comes amid disparate statements about the administration's willingness to grant other concessions, such as preserving Iran's access to worldwide financial markets, as the Free Beacon first reported on Monday.
With Iran sanctions still on the table, potential spare capacity constraints and also a slowdown in USA drilling, US bank J.P.Morgan said in its latest cross-asset outlook for clients that it recommended to "stay long Jan '19 WTI on supply risks to crude". Buying oil from Iran is a good option for India because of the 60 days of credit and practically free shipping and insurance. This likely means we won't see any serious buying this week unless the price is right. Prices are up six cents more than a month ago and 41 cents more than this time previous year.
"These officials are planning to announce that it's OK to give banks waivers because re-imposed sanctions on businesses are sufficient", the source explained.
Indian refiners imported around 10 million barrels of Iranian oil in October, and its November shipments are expected to be lower.
India has already stated that it will continue importing oil from Iran as they "do not recognise sanctions imposed by anyone other than the United Nations". It was India's second biggest supplier of crude oil after Saudi Arabia till 2010-11 but Western sanctions over its suspected nuclear programme relegated it to the seventh spot in the subsequent years. In the following year, the Iranian supplies jumped to 27.2 MT to catapult it to the third spot.
State-owned oil producer Saudi Aramco was not immediately available for comment.
Besides blocking of banking channels from November, the absence of payment mechanism may pose a challenge to the transportation of the oil as Iranian crude is bought on a CIF basis and shipped on Iranian tankers. The liability and costs associated with successful transit are paid by the seller until the goods are received by the buyer.