Monday, 20 August, 2018

Crude oil futures slip on higher USA stocks, but risk premium lingers

Source Bureau of Safety and Environmental Enforcement via Flickr Source Bureau of Safety and Environmental Enforcement via Flickr
Glenn Montgomery | 03 May, 2018, 16:53

Geopolitics could well derail oil's bull run; there is a very real possibility that President Trump may effectively kill the Joint Comprehensive Plan of Action (JCPOA) on Iran's nuclear program by May 12. Can this have a positive effect on the United States economy, the global economy or is it likely to have more of an adverse effect?

Despite crude oil prices hovering around $70perbarrel, the market outlook remains uncertain.

In the short term, however, we can expect that Iran will simply redirect its oil trade from the West to the East if heavier sanctions are reimposed.

But trading and industry sources told S&P Global Platts that even if that happens, the oil industry will be given a transitional period to adjust. Ahead of potential sanctions Iran is pumping at record rates. The problem is that although the profits on the table may look huge, overnight fees are so high that it is hard to make profit on long-term trades, so it usually makes more sense to trade relatively short-term moves. China and India bought more than half of the oil.

"It shows how much the market has already priced in the expectation that Trump will not extend the waivers", he said.

"We see that Europeans have nominated cargoes in June".

"It's an open question whether or not Saudi Arabia would react", Wittner said. "If there were additional difficulties to lift Iranian [oil], some volumes might be increased to others; a rebalancing of volumes but nothing big". In other words, the price differentials will put a ceiling on the volumes of crude leaving USA shores, although where that cap is remains to be seen.

Michal Meidan, head analyst for Asian energy policies and geopolitics at research consultancy Energy Aspects told CNBC late past year, "I think the US certainly is poised to capture a lot of that growth".

The key buyers of Iranian crude in this region are Turkey, France, Italy, Spain and Greece. Trump must decide by May 12 whether to re-impose sanctions on the OPEC nation. Global oil demand grew during the first three months of 2018 at the fastest pace in almost eight years, according to Goldman Sachs.

"The US could limit Iran's access to its oil money and importers have to return Iran's money in goods, services or investment".

Oil prices slumped on Thursday dragged by the ballooning USA crude inventories, plus a record weekly U.S. production that is offsetting the efforts by the Organization of Petroleum Exporting Countries to curb supplies and spur demand to prop up prices.

The risk OPEC faces now is tightening world markets too sharply, and sending prices to levels that either crimp oil demand or provoke a new tide of rival supply from the U.S. As Angola's creeping decline adds to the ongoing slump in Venezuela, that danger only grows.

Sputnik: What countries would be impacted the most from this loss, obviously, apart from Iran, the producers which countries are they exporting their oil to, who's buying their oil, who's friendly towards Iran when it comes to oil purchase?

Iran, a member of the organization of the Petroleum Exporting Countries (OPEC), re-emerged as a major Oilexporter in January 2016 when global sanctions against Tehranwere lifted in return for curbs on Iran's nuclear programme.

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