US Crude Breaks $70 as Assessment of Geopolitical Impact on Prices Ranges from Nuisance to Mayhem

by Ship & Bunker News Team
Monday May 7, 2018

With less than a day left before U.S. president Donald Trump announces his decision on the state of the Iran nuclear deal, traders on Monday caused West Texas Intermediate to settle up $1.01 to $70.77 per barrel, the first time since November of 2014 broke the $70 threshold.

Brent climbed 46 cents to $75.33 per barrel, and it is said that the benchmarks were earlier boosted by news that ConocoPhillips has moved to seize key Caribbean assets of Venezuela's  PDVSA in order to enforce a $2 billion arbitration award - and that this could further restrict PDVSA's declining oil production and exports.

Josh Graves, senior market strategist at RJO Futures, explained Monday's trading activity by noting that Trump announced his decision time without slamming the Iran deal: "The market is probably considering from his comments that we stay in this deal, that we would tweak it and not totally leave the deal."

Giovanni Staunovo, an analyst at UBS Group AG, added that the prospect of high gasoline prices ahead of U.S. midterm elections this year "could be a factor in leading the U.S. president to reconsider calling off the Iran deal."

Offering the expected contrary opinion was Joe McMonigle, an energy analyst at Hedgeye Research, who believes Trump's announcing a decision four days earlier than expected is "a sign that he's planning on reimposing sanctions, and the only question for oil markets is how soon."

Contrary opinions also comprised Monday's media reporting with regards to where oil might go in the current climate of geopolitical strife: Bob McNally, president of the Rapidan Energy Group, told Bloomberg - which warned of a month of "mayhem" for oil - that "If you ask me what the biggest geopolitical disruption risk to oil supply between now and December, I would say Venezuela.

"In terms of geopolitical risk, Iran is just as important, but are we going to lose 400,000 barrels per day of Iranian production by the end of the year? I don't think so."

Standard Chartered disagreed: "In our view, President Trump's decision on the waiver looks likely to be both the largest upside and downside risk to oil prices over the next 11 days."

At least one analysts seemed unfazed by the current global dramas and focused instead on the impact of crude on the overall economy: Art Hogan, chief market strategist at B. Riley FBR, told Bloomberg television that global supply and demand balances were achieved "a lot quicker" than originally expected, and that there is a "natural increase in the price per barrel of oil that's coming from both supply and demand being in balance and the equity complex just not playing along yet."

He went on to say that high energy prices are not as much of "a drag" on the overall economy as it used to be: "It's certainly something to pay close attention to, but in terms of the order of magnitude  that it actually slows the economy down, it's more of a nuisance than it is structurally a big change."

Meanwhile, on the other side of the world, Bijan Zangeneh, oil minister for Iran, a nation that has persistently sought to pump all out regardless of the global consequences, told media that reasonable oil prices would "encourage producers to keep supply while it would prevent global markets from plunging into instability," and he added that "manufactured tensions" were the reason behind the current rise in oil prices.

One of the more interesting observations amid the recent maelstrom of analytical forecasts for crude came from John Kemp, market analyst for Reuters, who last week suggested that even if Saudi Arabia gets its wish for $80 oil, it won't be nearly enough to allow the kingdom to achieve its goal of diversifying its economy away from the commodity - and that the appetite for Saudi crude on the world market may not be able to be sustained.