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Trump's Iran sanctions boost oil price

14 May 2018
Trump's Iran sanctions boost oil price

Trump's decision gives Iranian oil customers 180 days to find other reserves and could eventually limit about 1 million barrels of oil from a market with little spare capacity to work with. Within 48 hours, the kingdom had raised the prospect of increasing output.

The global oil market is finely balanced, with top exporter Saudi Arabia and No. 1 producer Russian Federation having led efforts to curb oil supply to prop up prices.

OPEC meets next in June, where it is widely expected to continue with the supply cuts until the end of 2018.

Goldman Sachs Group Inc. predicts that Brent will rise to $82.50 a barrel in the coming months, and says there's a chance prices could surpass that level, but sees oil subsiding again in 2019.

"What the Iranians don't want to see is the Europeans slap the sanctions on them, because the Europeans have made huge investments since the deal was signed in 2015, and they don't want to lose those investments". While it's still uncertain how much he intends to curtail Iranian oil shipments, most analysts predict a cutback.

U.S. Representative French Hill released a statement as well, calling for allies to participate in forming a new response to Iran's nuclear ambitions.

On the Shanghai International Energy Exchange, futures for September delivery gained 2.3 percent thus maintaining its winning streak for the fourth day.

The decision Tuesday comes as data shows USA stockpiles are dwindling, major producer Venezuela is wracked by economic upheaval, and OPEC and Russian Federation press on with an output cap.

"It's the same witches brew of bullish stuff: Iran, Venezuela, the lack of alacrity by Saudi Arabia to bring more oil onto the market", said John Kilduff, partner at Again Capital in NY. "Higher prices are more than likely to be capped as ... They agreed for talks to take place between our teams". However, Saudi Arabia and Russian Federation are already eyeing this opportunity and capture a share of this pie, which would normalize the supplies eventually. Kuwait later gave a similar assurance. Richard Nephew, senior research scholar at Columbia University's Center on Global Energy Policy, added that China and India may continue to buy Iranian oil even in the face of USA sanctions, negating some of their impact.

Reporting data from the Energy Information Administration (EIA), Reuters said that USA crude inventories fell by 2.2 million barrels in the week to 4 May to 433.76 million barrels, slightly above the 420 million barrels five-year average level.

There are risks too.

“OPEC has to engage in some balancing acts, ” said Bassam Fattouh, director at the Oxford Institute for Energy Studies.

"We're doing our best to get them all back", Pompeo said. S. out of an worldwide nuclear deal with Iran that was agreed in late 2015, raising the risk of conflict in the Middle East and casting uncertainty over global oil supplies amid an already tight market.

Much depends on Russian Federation.

Indian demand for Iranian crude is rising steeply as both Indian state-owned and private refiners are buying more due to Iran offering the country some freight discounts.

If the latter argument prevails, President Trump's decision may in fact have finally provided OPEC and Russian Federation, which in 2016 had expected their effort to take just six months, with an exit strategy.