By Navneet DamaniCrude prices tumbled last week, with WTI ending down 2.3 per cent and Brent 2.7 per cent.The turmoil in US and global stock markets and the US dollar index hitting an 18-month high led to further drop in crude prices. The market is getting cautious ahead of Iran sanctions and we have seen that major players, including the US and the UAE, are increasing their crude supply. Meanwhile, those like China are increasing their stockpile import ahead of potential supply disruption.There are expectations that crude prices will harden on worries of tighter supply as Washington’s sanctions against Iran’s crude oil exports kick in this November. On top of that, data from Baker Hughes showed that the number of US drilling rigs rose by 2 this week to a total of 875, the highest since March 2015, which softened the prices.The inventory reportThe oil slump aggravated after US crude inventories rose by 6.3 million barrels, compared with expectations of an increase of 3.7 million barrels. Gasoline stocks fell by 4.8 million barrels, exceeding expectations of a 1.9 million-barrel drop. Distillate stockpiles too turned lower, dropping by 2.3 million barrels. Output remained unchanged at 10.9 million bpd, slightly below a record 11.2 million bpd at the start of October. Crude stocks at the Cushing, Oklahoma, and delivery hub rose by 1.4 million barrel. Net US crude imports fell last week by 3,35,000 bpd.Meanwhile, IEA forecast that US crude oil production will average 11.8 million b/d in 2019, which is 300,000 b/d higher than the September forecast. OPEC signalled that it may have to return to oil production cuts as global inventories rise, in a statement that may further sour relations with US President Donald Trump. Countries complied with 111 per cent of pledged supply curbs in September as compared to 129 per cent, which means production went up from August.Iran sanctionsMarkets are still not sure about how much oil will be removed from the market once sanctions start. For Iran, Iraqi oil minister reversed his decision to transfer ownership of nine state-owned oil companies from the ministry to NOC and reported that Iraq hopes to produce 7 million bpd and export 4 million bpd in 2019.US-Saudi tiesMarkets remained highly volatile, wary of the impact of Saudi journalist Jamal Khashoggi episode on relations concerning Saudi Arabia, the US and other trading partners. Saudi Arabia continues to assure the markets that it would continue to meet customer demand for crude despite looming US sanctions that are expected to reduce oil exports from Iran.Signs of trouble?In China, two major refineries have not ordered any oil from Iran for November after the Chinese government reported that it has told at least two of its state oil companies to avoid purchasing Iranian oil as the US prepares to impose sanctions on the Persian Gulf state. The freeze on imports by China National Petroleum Corporation and Sinopec is temporary and purchases may resume depending on the outcome of negotiations.Natural gas showing softnessFor natural gas, prices came off after storage report which showed that US natural gas stockpiles increased by 58 billion cubic feet compared with a storage injection of around 39 billion. The US working stocks of natural gas totalled 3.095 tcf, around 624 bcf below five-year average of 3.719 tcf and 606 bcf below last year’s total for the same period. In addition, the gas storage deficit year-on-year is 16.4 per cent and noted that the five-year average is at 16.8 per cent.In coming weeks, the market will keep its focus on US sanctions on Iran, which will take effect on November 4. The sanctions are kicking in after US President Donald Trump pulled out of the Iran nuclear deal earlier this year. Meanwhile, any talks between China and the United States aimed at mitigating the trade row will be keenly watched.(The writer is AVP-Commodity Research at MOFSL)