The oil price is hurtling to new highs as US president Donald Trump pulls out of the Iran nuclear deal and vows to impose new sanctions on the OPEC member.
Iran’s oil exports were reduced by more than 1m barrels a day between 2012 and 2015 amid sanctions from the US and EU to force Tehran to negotiate over its nuclear programme.
It subsequently increased oil production after sanctions were lifted following an agreement on nuclear activities. That extra oil production now looks like it could be partially withdrawn.
In turn, speculation over reduced oil supplies has served to push up the oil price.
Oil stocks are being lifted by the commodity price movement including Premier Oil (PMO) up 4.7% to 99.7p, BP (BP.) up 2.1% to 561.8p and Royal Dutch Shell (RDSB) advancing 2.4% to £26.95.
Perhaps even more significantly, Trump has said the US will take action against countries which help Iran, threatening a wider impact from the move.
The net result is that Brent crude is trading at its highest level since November 2014 at just above $77 per barrel.
Having risen ahead of Trump’s announcement, Brent actually fell a little in the immediate aftermath of the news before gushing higher.
WHAT HAPPENS NEXT?
Broker Cantor Fitzgerald comments: ‘In terms of the impact on the oil market the sanctions could take up to 1m barrels of oil per day (bopd) out of the market, although we estimate that the near-term impact will be to take around 400-500,000 bopd out of global supply by the end of 2018.
‘However, with the amount of global spare capacity (oil that can be brought into production within 90 days) estimated to be less than 2m bopd, (and in practical terms much less), Saudi Arabia is the only OPEC member that is in any position to be able to inject oil in to balance the market.
‘However, whilst the Kingdom claims that it can lift output to 11.5m bopd, it has never produced more than 10.63m bopd in late 2016 (before the current OPEC deal took effect), so we see this as being unlikely. It is also worth noting that the Saudis have stated that they wish to keep prices rising (given their fiscal breakeven price is $88...).’
You can read our recent story on the oil industry’s recovery here.
