While India wants to continue importing Iranian oil, albeit a reduced volume, US Secretary of State Mike Pompeo last month stated that Washington would consider waivers on the embargo but made it clear that these would be time-limited, if granted.
At the same time, USA crude oil stocks are on the rise.
A U.S. government official said the Trump administration is "in the midst of an internal process" of considering waivers for countries that are reducing imports of Iranian crude.
"However it would come at a cost, both in terms of higher oil prices compared to the favourable terms it gets from Iran and in terms of higher shipping costs as they would inevitably be longer distance shipments compared to Iranian exports".
DUBAI - Iran's Oil Minister Bijan Zanganeh has dismissed claims by the Saudi crown prince that Saudi Arabia can replace sanctions-hit Iranian oil in the market as "nonsense". Reuters had reported on Friday that India would buy 9 million barrels of Iranian oil next month.
Iran's crude exports fell further in the first week of October as buyers sought alternatives ahead of US sanctions that take effect on November 4, according to tanker data and an industry source.
White House National Security Advisor John Bolton said only last week that the administration wanted to avoid all waivers and see Iranian oil and gas exports entirely staunched, but that it might not be able to achieve that aim.
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.
This follows a decision by US President Donald Trump to withdraw from a nuclear deal that Washington - together with Britain, France, Germany as well as Russian Federation and China - signed with Iran in 2015.
President Trump chose to leave the deal and reimpose sanctions. "On the other hand, Iran sanctions are only weeks away".
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".
"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.
Saudi Arabia had previously claimed it had successfully replaced Iranian crude oil supplies lost through USA sanctions.
During the first round of sanctions when European Union joined the United States in imposing financial restrictions, India initially used a Turkish bank to pay Iran for the oil it bought but beginning February 2013 paid almost half of the oil import bill in rupees while keeping the remainder pending till opening of payment routes.
"It is still early to say how India will settle its trade with Iran", the first source said, adding that India could consider paying Iran for crude with the rupee currency.
Has the simmering crude oil market peaked, even if for the time being?