Oil Jumps as U.S. Continues to Talk Tough on Iran Exports

by Ship & Bunker News Team
Wednesday August 22, 2018

Wednesday's crude trading supported the possibility that fear of market tightening may be returning to predominantly influence activity: both benchmarks jumped by a noteworthy 3 percent as a result of a larger than anticipated drop in U.S. crude inventories.

West Texas Intermediate ended Wednesday's session by jumping $2.02, or 3.1 percent, to settle at $67.87, while Brent rose $2.15, or 3 percent, to $74.78 per barrel.

The gains came after the Energy Information Administration disclosed that U.S. inventories fell 5.8 million barrels last week, in contrast to the 1.5 million barrel draw forecast by analysts in a Reuters poll; also, refinery crude runs slipped 89,000 barrels per day (bpd) from the previous week's record high to 17.9 million bpd.

To be fair, crude was also supported by the U.S. dollar this week slipping in value, which makes the commodity less expensive for buyers using other currencies.

Of course, concerns remain over how much oil will be removed from global markets by renewed sanctions on Iran, even though the trade dispute between China and the U.S. has widely been forecast as potentially having a toll on the economies of both countries and, consequently, a negative impact on demand.

Chances are news headlines about Iran may increasingly affect crude trading in the days to come, given that John Bolton, the U.S. national security advisor, said on a visit to Israel, "Regime change in Iran is not American policy, but what we want is massive change in the regime's behaviour," and this inspired The Guardian to note that "complete removal of Iranian oil from world markets would cut oil supply by more than 4 percent, probably forcing up prices in the absence of any new supplies."

But an even bigger - and newer - potential influence on crude trading in the near term came Wednesday in the form of  four senior industry sources telling media that Saudi Arabia has called off the domestic and international stock listings of state oil giant Aramco.

The sources also stated that with oil prices having rebounded above $70 per barrel, the long-planned but now scrapped IPO of Aramco is less urgent - although it is said that Crown Prince Mohammed bin Salman still wants to take Aramco public at some point in the future.

The problem with crude trading being so heavily influenced by media reports is that media routinely sends mixed and conflicting messages, much of which can't be verified until after the fact: for example, earlier this week BNP Paribas said it expected oil production from the Organization of the Petroleum Exporting Countries (OPEC) to decrease between now and 2019, yet simultaneously it was also reported that oil exports from southern Iraq are on course to hit another record high this month, which suggests OPEC is continuing to raise output (to avoid any market tightening) as promised.