Daily Management Review

Fear Of U.S. Sanctions On Iran And Reduced Venezuela Output Raises Oil Prices


04/28/2018




Fear Of U.S. Sanctions On Iran And Reduced Venezuela Output Raises Oil Prices
Geopolitics played a strong role in the upliftment of global prices of crude this week. Fears of new sanctions on Iran, debacle and fats reducing oil output from Venezuela and the econiomic political instability there and the growing demand for crude pushed oil prices during the middle of the week.
 
The Iran issue where United States President Donald Trump has renewed his threats of pulling out of the Iran nuclear deal and imposing new sanctions on the country played a major role in lifting of oil prices by 15 per cent in the last four weeks. Iran is a member of OPEC the Organization of the Petroleum Exporting Countries (OPEC) and major oil producer globally.
 
Iran and a number of Western powers had reached a deal in 2015 following which Iran decided to stop its nuclear program in exchange of lifting of economic sanctions on the country. Trump, starting off during the election campaign, has bene threatening to pull out of the Iran deal and on Wednesday, French President Emmanuel Macron said that his expectation was that Trump would pull out of the deal.
 
Trump has reserved his decision till May 12 and there are fears that any new sanctions on Iran would impact its ability to produce and export oil and the supply of oil globally would be hit.
 
“The price rise is due to growing expectations of new U.S. sanctions ... which would doubtless reduce the oil supply from Iran,” Commerzbank said in a note.
 
“French President Macron appears to have little hope that he would be able to persuade US President Trump to remain in the nuclear agreement ... Since the market is already tight because of the high production outages in Venezuela and the production cuts implemented by OPEC and Russia, any further reduction of supply weighs all the more heavily,” the bank said.
 
On the other hand, political and economic turmoil in Venezuela has resulted in the drop in the crude production in the country to about 1.5 million barrels per day (bpd) from a figure of about 2.5 million barrels per day (bpd) in early 2016.
 
These two geopolitical events have been partly offset by a growing strong demand for crude globally and specifically from Asia which is the largest consumt6ion region for oil. But that demand has also constrained an already reduced global inventory of oil thanks to the production cuts in force by the OPEC and some other oil producing countries including Russia.
 
However, there are also signs that supply may not be hit as badly as the market is expecting. 
 
Currently, about 429.74 million barrels is the inventory of U.S. crude oil while the inventory was about 2.2 million barrels less in the week to April 20. This translates into an increase of 46,000 bpd in production compared to the earlier week and the daily production is now3 at 10.59 bpd.
 
U.S. crude exports are at a record high and it has resulted in WTI crude becoming around $6 per barrel cheaper compared to the price of Brent.
 
Dutch bank ING said “the wide discount for WTI to Brent saw exports rising 582,000 bpd week-on-week to a record high of 2.33 million bpd.”
 
“The market does look a little toppish,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.
 
(Source:www.reuters.com)






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