Iran sanctions, Opec output cuts keep oil prices buoyed

Howard TerryMay 16, 2018

Brent crude futures, the global benchmark for oil prices, were at $78.30 a barrel at 4.32am GMT, up 7c from their last close and not far off a three-and-a-half-year high of $78.53 a barrel reached the previous session. Politics is at the heart of the recent increase. Why would oil prices move that much higher from current levels, which are already elevated?

The cartel estimated 2017 non-OPEC supply dipped by 10,000 barrels a day to 57.89 million barrels a day. Part of the "success" of these cutbacks is the result of economic and political instability in many oil producing countries.

However, the tailwinds for crude oil now vastly outnumber the headwinds, so prices will likely continue upwards in the coming days, especially in light of the escalation in Israel following the move of the US embassy from Tel Aviv to Jerusalem that ignited protests in Gaza, prompting an immediate military response from the IDF.

Even if the majority of the countries go along with the sanctions and supply is disrupted, there is talk that China, Russia, Saudi Arabia, Kuwait or Iraq stand ready to increase production to meet the expected shortfall. South Sudan oil production has fallen from 500,000 to 130,000 barrels per day.

Prices received a boost last week following President Donald Trump's announcement on May 8 that the United States would withdraw from the Iranian nuclear deal.

The data from OPEC show that the Organization for Economic Cooperation and Development (OECD) commercial oil stocks in March fell by 12.7 million barrels from previous month to almost 2.83 billion barrels.

Global demand is forecast to average 97.07 million barrels a day in 2017, up 13,000 barrels from last month's estimate.

BofA analysts, however, expect that strong global demand and supply constraints will support higher prices for at least the next 18 months "as long as global demand does not suffer from the ongoing threats of trade wars and policy uncertainty".

Rising prices, however, have another effect: They call forth efforts to find more supplies.

In his statement he also mentioned Kharg Island, which has recently seen a number of changes made to the oil sales strategy to reach a new oil exports capacity of 8 million barrels of oil and related products combined. The agency forecasts USA crude oil production will reach more than 12 million barrels per day by the end of 2019.

OPEC and Saudi Arabia made similar statements a year ago at the beginning of their initiative to curb oil production, and some pundits took this to be a way to avoid any predictions that could prove wrong of higher oil prices resulting from their cutbacks.

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