Oil prices surged on Tuesday after the Trump administration began pushing other countries to stop importing crude from Iran and will not grant waivers to sanctions. BP photo.
US oil prices up over 3 per cent
Oil prices rose significantly on Tuesday after the Trump administration pushed other countries to stop importing Iranian crude beginning in November.
By 2:14 p.m., EDT, benchmark Brent gained $1.43 to $75.98/barrel, down from a session high of $76.37. US West Texas Intermediate rose 3.25 per cent, or $2.21 to $70.29. This is the first time US WTI traded for over $70/barrel in two months.
The Canadian Crude Index jumped 4.85 per cent or $2.16/barrel to $46.68.
According to Reuters, an official with the US State Department told reporters that “We’re going to isolate streams of Iranian funding and looking to highlight the totality of Iran’s malign behaviour across the region”.
He added that the US will not grant waivers to sanctions.
In May, US President Donald Trump walked away from the Iran sanction relief deal which had been signed by Iran and six world powers. The deal saw Iran curb its nuclear capabilities in exchange for lifting of some sanctions.
After the 2015 agreement was signed, Tehran began to export crude globally and, in April, government data showed Iran exported 2.58 million barrels per day (b/d). Reuters reports Iran’s seaborne crude exports dropped to 2.38 million b/d in May and about 1.93 million b/d in June.
The Iran sanctions “would create an additional supply shortage, which is exacerbating the reduction of supply in Libya as well as the problems that we’re seeing with Syncrude Canada,” Andrew Lipow, president of Lipow Oil Associates told Reuters.
Last week, Syncrude Canada’s operation in the Alberta oil sands was shut down due to a power outage and the 360,000 b/d operation is expected to remain offline through July, according to a Syncrude spokeswoman.
Canadian supplies of heavy crude are expected to tighten due to the outage and will result in reduced flows to Cushing, Oklahoma. Cushing is the delivery point of the US crude futures contract.
These lower flows of Canadian crude could drain stocks at Cushing. Inventories at Cushing are a closely-watched metric that helps determine the value of US WTI.
“With the global market pricing to pull crude out of the US, this loss of US supplies will exacerbate the current global deficit, making the increase in OPEC production all the more required,” Goldman Sachs analysts wrote.
Meanwhile in Libya, warring factions have impacted the country’s crude production. Reuters reports that Eastern Libyan commander Khalifa Haftar’s forces handed over control to a separate National Oil Corporation, based in Libya’s eastern side.
The country’s official state-owned oil company will no longer handle that crude. The Libyan government in Tripoli says this decision would deepen division.
Riccardo Fabiani, geopolitical analyst at Energy Aspects, last week told Middle East Eye that Libya’s crude production could be cut by up to 40 per cent as a result of the fighting.
Over the weekend, OPEC and other producers agreed to boost their production by about 1 million b/d to stave off crude supply shortages, but, Lipow says he is concerned supply will be outpaced by demand.
Reuters reports that Bank of America Merrill Lynch says the price of Brent crude could hit $90/barrel by the second quarter of next year.