10-05-2018

Oil markets weigh fallout as U.S. quits Iran deal

President Donald Trump on Tuesday pulled the United States out of an international nuclear deal with Iran, raising the risk of further conflict in the Middle East and threatening to disrupt global oil supplies.
The 2015 agreement, worked out by the U.S., five other world powers and Iran, lifted sanctions on Iran in exchange for Tehran limiting its nuclear programme. The pact was designed to prevent the OPEC member from obtaining a nuclear bomb.

Oil prices have jumped to their highest since 2014 following Trump’s announcement.

The following are views on the likely impact on oil markets:

STEPHEN INNES, HEAD OF TRADING FOR ASIA/PACIFIC AT FUTURES BROKERAGE OANDA IN SINGAPORE, MAY 9 NOTE: MORE VOLATILITY

“Oil markets had an extremely volatile session, and predictably volumes soared, causing clearing delays. So, what’s next? More volatility, of course!!

“Given the unilateral move by the U.S., much of the movement on oil prices had been factored in. But now we are back to the delicate supply balance narrative which is part and parcel of OPEC/NON-OPEC accord, robust global demand dynamics and Venezuelan adversity, as its reasonably safe to say that the supply cushion is deflated.”

JBC ENERGY, MAY 9 NOTE: SHARP DROP IN PURCHASES OF IRANIAN CRUDE

“We expect to see a sharp drop in purchases of Iranian crude oil from all sides over the next couple of months, just as crude markets reach peak seasonal tightness.

“Estimates vary from a couple of hundred thousand barrels per day (b/d), essentially token compliance from some U.S. allies in East Asia to visibly reduce their Iranian crude imports, to more than 1 million b/d.”

JBC Energy expects some 500,000 to 700,000 b/d of Iranian crude oil exports likely to be pulled out of the market over coming months.

GOLDMAN SACHS, MAY 8 NOTE: IMMEDIATE IMPACT UNLIKELY

“Even if sanctions are re-imposed, the impact on the oil market may not be immediate, and we tentatively expect that several hundred thousand barrels of Iranian exports could eventually be at risk.

“While other participants have expressed their commitment to preserve the Iran deal, which suggests a smaller potential decline in exports than the 1 (million) b/d loss in 2012-15, the effectiveness of recent U.S. secondary sanctions on Rusal create an offsetting risk that unilateral action by the U.S. results in a collapse in exports.”

BARCLAYS, MAY 9 NOTE: LITTLE IMPACT ON IRAN OUTPUT

“We expect little impact on Iranian crude production in 2018 despite the understanding given on 8 May that the waiver is not going to be renewed.

“As a result of this decision, we lower our output expectations for Iran by around 150 kb/d in 2019 (from 3.91 mb/d to 3.74 mb/d), a volume that we expect could be offset by Saudi Arabia unilaterally raising output back to its quota level of 10.1 mb/d (at the expense of the country’s spare capacity) or by a coordinated reconfiguration of the OPEC/Non-OPEC Joint Declaration of Cooperation for 2019.”

BENJAMIN LU, COMMODITIES ANALYST AT SINGAPORE-BASED BROKER PHILLIP FUTURES, MAY 9 NOTE: NO IMMEDIATE CUT IN IRAN OUTPUT

“We do not foresee for an immediate reduction of Iranian production as Iran looks poised to ramp up on production to capitalise on the imposed timeframe.

“Much emphasis will have to be placed on the effect of U.S. pressure on importing nations of Iranian oil. Thus we postulate that the current term effects will be largely limited on the upside for oil prices.”

NAEEM ASLAM, CHIEF MARKETS ANALYST, THINK MARKETS, MAY 9 NOTE: NO BULL CASE

“Let’s say that Iran’s oil production does go down by half a million barrel per day, which would impact the price more positively – so, even with lower production, Iran may not be in such a bad position because of the higher oil price.

“Most importantly, Iran learned how to work with sanctions and the country is in a much stronger position politically and economically to work with other major players in the region to find a solution which fits all.

“Hence, there may be no point in becoming a massive bull on oil (I do not see any bigger impact on the oil supply), or hold a massive bearish position on Iranian currency or the equity market.”

COMMERZBANK, MAY 9 NOTE: NOT AS BAD AS LAST TIME

“In the period up until the start of 2016, up to 1 million barrels of Iranian oil per day were stripped from the market by the sanctions at the time. Nearly half of this total was due to a complete EU import ban.

“This is unlikely to happen this time around as the U.S. has revoked the deal unilaterally and against the will of most other countries. Meanwhile, Saudi Arabia has signalled its willingness to offset possible sanction-related supply outages from Iran.”

Source: Reuters

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