Trump faces a May 12 deadline to decide the fate of the Iran nuclear deal.
Trump's decision could eventually mean less oil on the world market from Iran because now the US will reimpose economic sanctions on Iran that were lifted as part of the 2015 deal.
By Pratish NarayananFor the world's biggest oil buyers, the imposition of United States sanctions on Iran will be a case of deja vu.
With Iran's oil production up almost 1 million barrels per day (mbpd) to 3.8 mbpd since the sanctions were lifted last year, there are concerns that reinstating sanctions on the fifth-largest oil producer in the world will curb global oil output by 300,000-600,000 barrels per day over the next year, creating further upward price pressures.
"Our balances show that if OPEC production were constant this year, and if our outlooks for non-OPEC production and oil demand remain unchanged, in 2Q18-4Q18 global stocks could draw by about 0.6 mb/d", the IEA wrote in its April Oil Market Report. While foreign officials and analysts say Trump is likely to remove the US from the pact, the president may also surprise allies by agreeing to stay in the accord a while longer as American and European diplomats forge side deals aimed at addressing his concerns. Monday was the first time since November 2014 that WTI had climbed above US$70 per barrel.
Hofmeister said prices will continue to rise slowly over the course of the summer.
Iran's share of global oil output is less than 5 percent, but crude prices typically move on the margins.
"If we flat line the current gas price over the course of this year to reflect a sustained impact, the average price per gallon of gasoline will be about 36 cents higher this year compared with last year's average", Zentner wrote in a note to clients Tuesday. "We see inventories reaching a 10-year low by the end of this year".
The strategy has worked, aided by rising global demand for energy.
Simultaneously, higher prices at the pump and elevated inflation constrain households' disposable income and outlays.
It is also unclear whether Saudi Arabia will act to make up for the loss of Iranian oil supply.
The United States plans to impose new unilateral sanctions after abandoning the agreement, which limited Iran's nuclear ambitions in exchange for removing joint US-Europe sanctions. Heightened geopolitical fears in the Middle East often raise prices. During the last round of sanctions, India enjoyed waivers allowing limited Iranian oil imports paid for in rupees instead of USA dollars.
"The three or four-year period of quiet in terms of geopolitics impacting oil markets is over", said Canary's Eberhart. That put total stocks just 30 million barrels above the five-year average, which means that we are close to arriving at OPEC's long-sought goal of achieving "balance" in the market.
The recent surge in prices suggests markets are assuming there will be some disruption to Iran's exports, Shum said.
On Nov. 4, sanctions will be reinstated on Iran's energy sector and on the provision of insurance or underwriting services.
Waivers At the heart of the problem for Iran's biggest customers was a law that cut off access to the USA banking system for foreign financial institutions that settled trades with Middle East nation's central bank.
"Short of war, the only way Iran's crude sales could be disrupted is if European and certain Asian buyers revert back to their pre-2015 embargo policy - and there is virtually zero chance of that", Raymond James energy analyst Pavel Molchanov said in email. When sanctions were loosened against Tehran in 2016, India ramped up imports from Iran to nearly 900,000 bpd in late 2016, but intake has fallen back to around 500,000 bpd this year.
Other companies should be able to pass along higher energy costs to their customers, especially because the USA and world economies are healthy. But it's sending shudders through other major businesses.
Saudi Arabia, for instance, has the ability to crank up output.
"We'll see what happens next once the actual supply is taken out, which will have a much more dramatic effect", he said.
One catch: Output is surging so much in the Permian Basin, America's biggest oilfield, that pipelines can't keep up.
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