Oil Market May Get Blindsided by Iran Deal

08 May, 2018, 02:12 | Author: Sergio Cook
  • Loss of Iranian oil supplies will not be easily made up for- Phil Flynn

Meanwhile, China's Shanghai crude oil futures, launched in March, broke their dollar-converted record high of 71.32 dollars per barrel by rising as far as 72.54 dollars on Monday.

Persistent fears that President Donald Trump will pull out of the Iran nuclear deal later this week have played a pivotal role behind the price of USA crude oil rising above $70 for the first time since November 2014 during early morning trading. That's US$10-15 lower than the current level, at which Brent and WTI are trading as the market awaits President Trump's decision on whether to reimpose economic sanctions on Iran. But even new sanctions on Iran won't necessarily remove a big chunk of oil supply.

Some analysts think the timing could magnify the impact.

Even though some of the decline was due to unintended problems, the reality is that the market badly misjudged OPEC's resolve to erase the world of the oil glut. Production hasn't been catching up, however.

This season's higher gas prices has people like Tina Peacock of Clermont rethinking driving habits.

Analysts said a crisis in Venezuela, a major oil exporter, underpinned prices.

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With global supply already on a downward slope, Iran sanctions could be the last straw to shift the market dynamic, said Leigh Goehring of Goehring & Rozencwajg Associates. The move could deal a further blow to the company's declining oil output and exports. The calculation that is made in market of raw materials is as follows: Iran now produces 3.8 million of barrels daily, and, if Washington opted for hard hand, it will stop exporting equivalent to between half a million and one million barrels per day. Natural gas is under pressure as USA production surges. Baker Hughes reported the number of active US rigs drilling for oil rose by 9 to 834 this week. That was the fifth consecutive week of gains.

Noticeably, a lot of this growth came from the transport sector with a surge in larger vehicle purchases as SUV and light trucks represented almost two-thirds of total USA sales in 2017 up from 47 per cent in 2011, according to IEA data. "Many believe they will see strong growth from Bakken and Eagle Ford as well, but that's not the case", Rozencwajg told Barron's. And this doesn't account for the potential supply impact from USA shale producers that for some unusual reason are no longer considered a threat to OPEC and other non-U.S. producers.

In this regards, Saudi Arabia is throwing everything including the kitchen sink to support higher oil prices ahead of its Aramco initial public offering. "Instead, they are using free cash flow to return capital to shareholders via increased buybacks and dividends".

On Monday morning, the average price for regular unleaded in Orlando was $2.64 a gallon, according to AAA's daily fuel gauge.

There is a threat that the uncertainty will play a role in how global stocks perform over the coming days, while it should also not be understated that higher-yielding currencies like the South African Rand, Russian Ruble and Turkish Lira, to name just a few, are highly reliant on investors being attracted towards taking on risk.


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