Oil prices drop as focus turns to Trump, Asian stocks climb

Ivan Schwartz
May 14, 2018

Facing the prospects of new economic sanctions, Iran moves to begin the first commercial exports of its own crude oil grade, West Karoun, Reuters reports, citing sources familiar with the matter. "In turn, Iran should continue to receive the sanctions relief it is entitled to whilst it remains in compliance with the terms of the deal", they said.

Volumes jumped for all key crude oil futures contracts as investors took new positions and refiners hedged to protect themselves from higher feedstock prices. In every respect, the imposition of sanctions on Iran would be a special situation, too. While it's still uncertain how much he intends to curtail Iranian oil shipments, most analysts predict a cutback.

"Iran's exports of oil to Asia and Europe will nearly certainly decline later this year and into 2019 as some nations seek alternatives in order to avoid trouble with Washington and as sanctions start to bite", said Sukrit Vijayakar, director of energy consultancy Trifecta.

In a research note, Gregory Daco of analyst firm Oxford Economics pointed out that Iran's oil production has grown around 1 million barrels per day to 3.8 million barrels per day since USA sanctions were lifted previous year.

Mnuchin said that the existing licenses held by Chicago-based Boeing Co. and its European competitor, Airbus Group, would be invalidated by U.S. President Donald Trump's decision. Total volume traded was about 70 percent above the 100-day average. Incidentally, Iran is the third biggest producer in the OPEC block. Any short-term spike in the oil price in response to the curtailment of Iranian imports is likely to provide higher revenues to actors like Russian Federation.

This presents the Saudis with a dilemma: Should they retain their focus on higher prices and keep output steady?

A statement released by the kingdom a few hours after Trump's announcement seemed to provide the answer.

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Saudi Arabia and Iran have long contended over influence in the region. Kuwait later gave a similar assurance.

Under the previous round of sanctions, India received waivers to purchase oil from Iran in rupees, rather than USA dollars, and now pays for Iranian oil using euros via European bank payment channels.

Boosting output to compensate for Iran and reining in rising prices would prevent damage to the global economy, and fuel demand.

Oil prices clocked up more multi-year highs on Thursday as traders adjusted to the prospects of renewed USA sanctions against major crude exporter Iran amid an already tightening market. By taking this step without the support of most of its allies, including those party to the JCPOA, any impact will likely be less durable, and likely more vulnerable to opportunistic arbitrage, such as China and others snatching up any Iranian crude displaced from other markets.

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

But Kloza sees relief in the future because oil production is booming in the U.S. The E.I.A. projects domestic crude production will rise to almost 12 million barrels a day in 2019 - that's a million more barrels of oil a day than the country is expected to produce this year.

Much depends on Russian Federation. It will bring about renegotiation of trade deals with Iran and would take away some portion of the Iranian crude supply from the market. The agency has raised its forecasts every month since last August.

Other reports by GizPress

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