Oil steady as demand outlook counters boost from Iran sanctions

Oil held steady on Tuesday, as the prospect of price support from U.S. sanctions on Iran was offset by concern about the outlook for demand, particularly in light of the trade dispute between Washington and Beijing.

Brent crude futures were down 2 cents at $72.19 a barrel at 0928 GMT, while the most-active October U.S. crude futures contract was down 7 cents at $65.35 a barrel.

"Prices are being supported by the prospect of lower oil supply from Iran," Commerzbank said in a note.

The full impact of the Iran sanctions is not yet clear.

While most of Europe's energy firms are likely to fall in line with Washington, China has indicated that it will continue to buy Iranian oil.

The Iranian supply cut may also be more than compensated for by production increases outside the Organization of the Petroleum Exporting Countries.

BNP Paribas said it expected oil production from OPEC, of which Iran is a member, to fall from an average of 32.1 million barrels per day (bpd) in 2018 to 31.7 million bpd in 2019.

Still, traders said overall market sentiment was cautious given the U.S.-China dispute that threatens to undermine global growth and, therefore, consumption of industrial commodities.

"Prices remain range-bound on the competing trends of demand fears and looming Iranian sanctions. On the former, Asian markets firmed a little on a slight easing in tensions between the U.S. and China with trade talks between the two nations taking place this week," consultants JBC Energy said.

A Chinese delegation is due in Washington this week to try to resolve the dispute, but U.S. President Donald Trump told Reuters on Monday he does not expect much progress and that resolving the disagreement will "take time."

On the supply front, Washington on Monday offered 11 million barrels of sour crude from its Strategic Petroleum Reserve for delivery from Oct. 1 to Nov. 30. The released oil could offset expected supply shortfalls from sanctions against Iran.

(Additional reporting by Henning Gloystein in SINGAPORE; Editing by Dale Hudson)