Analysts Insist That Crude Market is Healthy Despite Iran Jitters Causing More Price Hikes

Tuesday April 23, 2019

Even though the announced expiry of the waivers for Iran oil imports caused a substantial crude price drop on Monday due to fears that this will contribute to a tight global market, Tuesday's session saw continued assurances from numerous quarters that global supply health is doing just fine.

Jeff Currie, global head of commodities research at Goldman Sachs, told CNBC television that, "you look at where we are today versus where we were six months ago, we're still below where you were going into that potential shock from the Iranian sanctions, I think they key message here is the shock is smaller than we saw six months ago."

Then Currie added, "We now know that OPEC [the Organization of the Petroleum Exporting Countries] has that spare capacity: they ramped it up and took it back down - we think the shock is roughly 900,000 barrels per day [bpd], and we just saw OPEC, or at least core OPEC, take 1.8 million bpd off the market."

Currie went on to cite another factor that will contribute to a stable rather than tight market, namely, more capacity from the U.S. Permean Basin: "Which means the Americans can add a lot of oil back into the global markets."

For its part, the International Energy Agency said on Tuesday that global oil markets are adequately supplied and spare production capacity remained at comfortable levels, and that this spare capacity has risen to 3.3 million bpd due to high compliance rate with the supply cuts among OPEC members and their allies.

If bluster counts for anything, then remarks made on Tuesday by Bijan Zanganeh, energy minister for Iran, further support the contention that the end of the waivers or the U.S. sanctions will not overly stress the market, because "With all our power, we will work toward breaking America's sanctions," he said.

Traders saw the market conditions slightly differently on Tuesday, and their concern about the prospect of a tight market caused Brent to rise 47 cents to $74.51 per barrel and West Texas Intermediate to rise 75 cents to close at $66.30, its highest close since late October.

Even analysts long used to the jittery nature of crude traders were somewhat surprised by Tuesday's market performance, and when asked what the termination of the Iran waivers means to crude's macro-picture, Jeff Kilburg, CEO of KKM Financial, told CNBC television that "This anxiety or the emotion we see today may be short-lived, because we don't really see geopolitical tensions escalating to the point where we're going to see crude oil back at $73."