Crude oil benchmarks jumped on London and New York markets on Apr. 22 after US President Donald Trump’s administration announced no extensions will be granted to waivers on US sanctions against Iranian oil purchases.
The waivers apply to China, India, Japan, South Korea, Italy, Greece, Turkey, and Taiwan. Existing waivers expire on May 2. US Sec. of State Mike Pompeo said on Apr. 22 that the administration will end those waivers for US allies rather than renew them (OGJ Online, Apr. 22, 2019).
Barclays Research issued a note saying the Trump administration “modified expectations” regarding Iranian oil volumes available on world markets in coming weeks.
Many market participants had expected the sanctions waivers would be rolled over at a reduced rate, Barclays said.
Shin Kim, analytics head of supply and production analytics for S&P Global Platts, said the US announcement “moved oil markets into much tighter territory” throughout 2019. “No US-Iran waivers nearly exhaust oil market’s spare capacity,” when world oil supply risks already are high, Kim said.
“A key question at this point is enforcement by China and India,” Kim said. “Iran’s reaction will almost certainly be aggressive, and threats to the Strait of Hormuz have already commenced.”
A senior Iranian military official reportedly threatened that Iran would close the Strait of Hormuz. Bloomberg reported that about 20% of all seaborne crude and condensate trade passes through it.
Sara Vakhshouri, SVB Energy International president in Washington, DC, said, “If Iran oil exports hit zero, there will be significant consequences on the oil market and prices.”
She noted world oil supplies are lower than usual because of US sanctions against Iran and Venezuela.
“Iran zero-export policy will also have a psychological impact on both paper ad physical oil prices,” which will give oil prices upward momentum, she said.
Moty Kuperberg, director of Oil & Gas Dynamic Shipping in Haifa, Israel, told OGJ that he believes, “It is time for Saudi Arabia and Russia to bring back to market the oil they justifiably cut out to hold the prices,” from falling.
He suggests major producers “come back to the market and avoid a dangerous climb of oil prices.”
“A matured and energy-secured market can do without Iran,” Kuperberg said. “A matured and energy-secured market will keep prices at the level it achieved in the last quarter.” He also expects Iran to issued “its usual threats to damage its neighbors oil exports.”
In November 2018, US officials imposed new sanctions on Iran. The unilateral sanctions came after President Trump in May 2018 announced a US exit from an international alliance of countries. A 2015 agreement on Iran’s nuclear program lifted the alliance’s oil sanctions against Iran.
Energy prices
The May contract for light, sweet crude oil on the New York Mercantile Exchange jumped $1.70 to settle at $65.70 on Apr. 22. The price for June delivery climbed $1.48 to settle at $65.55/bbl.
NYMEX natural gas for May gained 3¢ to a rounded $2.52/MMbtu.
Ultralow-sulfur diesel for May increased 3¢ to a rounded $2.10/gal. The NYMEX reformulated gasoline blendstock for May increased nearly 6¢ to settle at $2.13/gal.
Brent crude for June jumped $2.07 to settle at $74.04/bbl. The July price climbed $1.96 to settle at $73.39/bbl.
The gas oil contract for May increased $13.25 to $648.75/tonne on Apr. 22.
OPEC’s basket of crudes for Apr. 22 was $70.44, up $1.61 from Apr. 18. OPEC offices were closed Apr. 19 and Apr. 22.
Contact Paula Dittrick at [email protected]
