Crude Jumps After US Calls for November Halt On Iranian Imports

by Ship & Bunker News Team
Tuesday June 26, 2018

Unlike his predecessors, U.S. president Donald Trump on Tuesday eschewed the practice of allowing countries to gradually phase out crude imports and instead ordered companies to cut all Iranian imports by November 4 - or face powerful sanctions.

This hard line approach had a distinct effect on traders, who caused West Texas Intermediate to surge by 3.6 percent, or $2.45 per barrel, to $70.53; Brent climbed $1.60 to $76.33 per barrel.

The announcement comes at a time when Venezuela's production has plummeted with little hope of recovery any time soon, and the market is dealing with short-term supply disruptions from Libya and Canada.

However, while Trump's move attracted the usual share of criticism, Gene McGillian, vice president of market research at Tradition Energy, conceded that while "what the effect is going to be [will] be the difficult thing to measure, it could point to more demand for U.S. oil."

Matt Smith, director of commodities research at ClipperData, agreed: "If we are going to see more Iranian barrels coming off the market, that is likely to be bullish for U.S. exports."

As for the effect the brash billionaire had on oil companies, John Kilduff, founding partner at Again Capital, remarked, "I'm seeing the companies - left, right and center - drop out from buying" Iranian oil, and "Total and Shell have announced they're not buying it anymore, starting now."

Kilduff theorized that Trump's plan is to crush the Iranian regime after 40 years of inconsequential U.S. pressure - something several Middle Eastern nations, most notably Saudi Arabia, would presumably applaud.

That aside, some experts now wonder if the Organization of the Petroleum Exporting Countries' (OPEC) decision last week to increase production by 1 million barrels per day this year wasn't too conservative: Andrew Lipow, president of Lipow Oil Associates, noted, "There is concern that the recent agreement by OPEC and non-OPEC producers will not be enough to satisfy oil demand."

Also supporting crude prices on Tuesday was the American Petroleum Institute reporting that U.S. crude inventories fell a surprising 9.2 million barrels, instead of the 2.6 million barrel decline that had been expected.

However, relatively ignored by traders was news from the Saudis that the kingdom will hike production from about 10 million bpd to 10.8 million bpd in July,

It would be an understatement to say that Iran has had a rough week: during the OPEC meeting in Vienna last Friday it failed to persuade the cartel to condemn the U.S. sanctions, and it was also proved wrong in its prediction that a massive disagreement among members would prevent any production increase agreement from being ratified.