The Shocking Role of Iranian Sanctions in Crude Oil's Plunge

Lloyd Doyle
November 17, 2018

Oil prices have plunged more than $20 a barrel since the start of October, when Brent crude rose to almost $87 a barrel and U.S. benchmark West Texas Intermediate (WTI) traded around $77.

But when President Donald Trump imposed sanctions November 5, he issued six-month waivers for some of Iran's biggest oil customers.

"If the ban on Iranian crude persists, obviously, it is a blessing to oil producing countries, especially Nigeria, which relies on crude oil exports for more than 70 per cent of its foreign exchange earnings".

Oil rose, ending its longest string of declines amid strengthening signals that OPEC and allied producers are considering production cuts as soon as next year. Total volume traded on Thursday was about 23% higher than the 100-day average.

Brent Crude is not down more than 20 percent from its recent high, officially putting it in bear market territory.

Prior to sanctions, the US pressure campaign helped reduced Iran's exports from about 2.7 million to 1.6 million barrels a day. The global benchmark crude was at a $9.88 premium to WTI for the same month. The talks are preliminary, and the size of the final cut will largely depend on the starting point they use, said one of the people.

Brent was trading at $65.54 a barrel, following its largest one-day loss since July 2018. This is despite the fact that Saudi Arabia cut 500K barrels for December and signalled that it looks like OPEC is going to cut production.

As prices slumped into a bear market, a committee of OPEC and allies including Russian Federation on Sunday said they may need "new strategies", signaling curbs may be on the horizon.

In the United States, if the stockpile gain reported by the American Petroleum Institute is confirmed by Energy Information Administration data, that will mark the eighth straight week of increases. Analysts predict a rise of 3.2 million barrels, according to a Bloomberg survey. The agency raised its forecast for oil output growth from countries outside the Organisation of Petroleum Exporting Countries to 2.4 million bpd this year and 1.9 million bpd next year, versus its previous estimate of 2.2 million bpd and 1.8 million bpd, respectively.

The 14-member Opec expects oil supply from its rivals to outpace its own output next year.

What has been made apparent by OPEC and the IEA is that oil demand growth is slowing, while oil supply, most notably from the United States is rising to record levels at a rapid rate.

Once the oil industry's star product, gasoline is now losing oil refineries money in Europe and has plunged in value against diesel, its main competitor.

Iledare said: "By allowing some countries to buy crude from Iran, however, small it may be, the U.S. government has reduced the pressures, which the sanction would have on the global oil market and members of OPEC".

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Other reports by Iphone Fresh

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