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Sanctions on Iran to affect oil supply balance

15 Mai 2018

Oil reached $78 a barrel on Thursday, its highest since November 2014, two days after President Donald Trump said the United States was abandoning an worldwide nuclear deal with Iran and would impose new sanctions.

Accelerating prices are causing pundits on Wall street to invest more funds into energy stocks, particularly for shale oil and and gas.

"The resurgence has been largely driven by heightened geopolitical tensions rather than fundamentals or macros", wrote Brian G. Belski from BMO in a report published Thursday.

"I think it's a sign that he's planning on re-imposing sanctions, and the only question for oil markets is how soon", said Joe McMonigle, an energy analyst at Hedgeye Research.

The Treasury Department has said it would consider exemptions for countries that demonstrate significant reductions of Iranian purchases in the next six months, but not all analysts expect the White House to grant any sanctions relief.

Sanctions imposed on Iran in early 2012 by the United States and European Union over its nuclear programme cut Iran's crude exports from a peak of 2.5 million barrels per day (bpd) before the sanctions to a little more than 1 million bpd.

Oil prices dipped on Friday, easing from multi-year highs in the previous session on hopes that alternative supplies could replace a looming drop in Iranian exports from USA sanctions. "And the consequences of American sanctions go well beyond goods shipped by American companies, because of our technology licenses to many other countries and businesses around the world", Bolton said.

Trump's announcement last Tuesday that the United States was exiting the 2015 nuclear accord was met with widespread dismay among its other signatories - China, Russia, France, the Britain and Germany. Japan and South Korea might comply with the reimposition to keep good ties with the US, but might also seek exemptions to minimize damage. "The US has systematically forced Iran to turn more toward Russian Federation and China".

In particular, USA output rose by 84,000 barrels per day last week to more than 10.7 million barrels per day - the most since the EIA started maintaining weekly data in 1983.

Pavel Molchanov from Raymond James thinks oil prices have been surging most likely due to concerns about potential escalation of the conflict in the future.

Saudi Arabia is ready to offset any supply shortage but it will not act alone to fill the gap, an OPEC source familiar with the kingdom's oil thinking said on Wednesday.

Washington has given European firms doing business in Iran up to six months to wind up investments or risk US sanctions and they are also forbidden from signing any new contracts with Iran.

Looming over the U.S. enforcement process will be Iran's response.

Where else in the world bears watching for energy investors? US Vice President Mike Pence called on Venezuela this week to suspend its "sham" presidential election, set for May 20.

The situation could revitalize Russian-Iranian economic ties that have been losing ground in recent years despite the involvement of Russian nuclear and oil giants in the Middle Eastern country. The gradual fall has helped the US crude market shift from year-over-year storage surplus to a deficit.

Iran's revenues from the oil and gas would be maintained as envisaged in the national budget bill, he said.

The surging oil price has implications beyond the oil market and its direct participants. "That absolute plunge in Venezuelan production. just highlights how tenuous the market is in terms of the supply and demand balance", said John Kilduff, a partner at Again Capital LLC.

Sanctions on Iran to affect oil supply balance