US Still Confident That Market Can Cope Without Iranian Oil

Analysts sees corrective activity ahead for oil prices. File Image / Pixabay

Despite every conceivable manner of geopolitical tension, both real and perceived, that has caused high crude prices for the past few months, another insider said on Monday that the market should remain stable in the face of the biggest perceived threat of all: the loss of Iran crude due to the U.S. sanctions against the Islamic republic.

After visiting India and talking with France, Britain, and Germany ahead of a new round of sanctions on November 4, Brian Hook, the U.S. special envoy for Iran, told media,  "We are seeing a well-supplied and balanced oil market right now; we should focus on these fundamentals and not be distracted by the emotional and unbalanced claims coming from Tehran."

Hook added that "Our [U.S.] crude oil production increased by 1.65 million barrels in August compared to one year ago and that is expected to continue rising by as much as 1 million barrels per day within the next year."

As for the unexpected monkey wrench that could mitigate the agreeable scenario proposed by Hook - namely, Saudi Arabia possibly not pumping extra oil to compensate for the Iranian losses, in retaliation for the U.S. holding it accountable for the disappearance of journalist Jamal Khashoggi - it so far is proving to be a non-issue, at least on the trading floor.

Paul Nolte, portfolio manager at Kingsview Asset Management, told Bloomberg television that "All we're seeing right now is a little bit of corrective activity, but we would have expected to see a little pop higher on some of the saber rattling if you will between the U.S. and Saudi Arabia; so again, kind of quiet in the energy market, not a lot of reaction there."

Just as some observers have viewed Trump putting the Saudis' feet to the fire as necessary to dissuade other countries from taking similar action against dissidents, the new-found confidence about the Iran situation taking tentative hold within analytical circles may be fueled by a contention that the sanctions are necessary as well.

Hook reminded media of the intentions behind the sanctions by stating that Iran used oil revenue to support and fund terrorist proxies throughout the Middle East, including in the proliferation of ballistic missiles, and therefore cutting imports of Iranian oil to zero must happen as quickly as possible: "We are working with countries that are reducing their imports to ensure that this happens."

As for European efforts to create a special-purpose vehicle (SPV) for trade, including oil, with Tehran by November, Hook said, "From what we've seen this SPV seems to want to create supply, but we don't see much demand for it when you look at well over 100 companies that have already made clear they are leaving."

Although this could be another week in which analysts who have been predicting triple digit crude prices due to geopolitical tensions remain silent, there is still the lingering sense that some form of market tightening is bound to occur in the near future, and Bank of America Merrill Lynch believes there is a distinct possibility that Brent could reach $92 per barrel and West Texas Intermediate to top $85 in the near term.