Oil surrenders gains as investors take profit on Iran-based rally

Lloyd Doyle
May 16, 2018

"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".

Ignoring pleas by allies, U.S. President Trump on Tuesday pulled out of a 2015 worldwide deal with Iran and announced the "highest level" of sanctions against the OPEC member, making investors nervous about rising risks of conflict in the Middle East and about oil supplies in a tight market.

Several refiners in Asia said on Wednesday they were seeking alternatives to Iranian supplies.

Zanganeh said Iran's crude production was about four million barrels per day (bpd), nearly four percent of global output.

"If ConocoPhillips is successful, then it will limit the revenues PDVSA will have and give them even more problems paying their bills and producing their oil", said Gene McGillian, manager of market research at Tradition in Stamford.

"I think at the moment there's some feeling in Europe - they're really surprised we got out of it, really surprised at the reimposition of strict sanctions".

Brent crude futures settled 26 cents, or 0.3 percent, higher at $77.47 a barrel, after earlier hitting $78, the highest since November 2014.

Riyadh, which is part of a regional coalition that intervened in Yemen's civil war to fight the Houthis, accuses Iran of supplying the militia with ballistic missiles.

"Europe and China will not fight against the U.S. sanctions".

"In any case we will make sure that we comply with the applicable worldwide regulatory framework and, given our crude supply flexibility and diversification, we do not expect any significant effect on our operations".

Analysts said Iran's exports could be cut by 200,000 to 300,000 bpd as a result.

IRAN DEAL: The U.S. decision to leave the Iran nuclear deal, which required Iran to curb its nuclear enrichment program in exchange for relief from worldwide sanctions, will be followed by a restoration of harsh sanctions aimed at limiting Iran's ability to sell oil or conduct other overseas business.

United States crude inventories C-STK-T-EIA fell by 2.2 million barrels in the week to May 4, to 433.76 million barrels, according to the Energy Information Administration (EIA), slightly above the 420 million barrels five-year average level. "It's wait and see. Iranian is not the only crude".

The biggest single buyer of Iran's crude is China, whose imports peaked at about 900,000 bpd in mid-2016 but have dropped to around 600,000 bpd in 2018, according to Thomson Reuters ship-tracking data.

"The deal has been structured in a way that it is shielded from any potential liability or prosecution under the American sanctions", said an Omani analyst, who declined to be named due to the sensitivity of the subject. "The key is banks". Another could be an independent financing mechanism allowing European companies to avoid US banks.

Since the sanctions were lifted in 2016, major European companies, partly wary of the remaining US sanctions on Iran, have been reluctant to do business with Tehran, which needs to attract over $100 billion in foreign investment to boost its crude output.

"We will be instituting the highest level of economic sanctions", Trump said.

"But you need to reduce your volume take over the grace period of 180 days to be favourably treated in the waiver discussion".

Other reports by Iphone Fresh

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