Oil price ‘could hit $100+ on impact of Trump’s Iran oil sanctions deadline’

Oil price ‘could hit $100+ on impact of Trump’s Iran oil sanctions deadline’
The Iran Khazar jack-up oil rig in the Caspian Sea.
By bne IntelliNews September 11, 2018

Oil prices could move above $100 per barrel when US sanctions against Iran’s energy industry take effect on November 5, an industry expert told CNBC on September 11.

Such warnings may be a concern for US President Donald Trump—if his economic attack against Iran ends up hitting the American motorist in the pocket, it could cost the Republican Party votes.

"If there was not that set of sanctions, I think prices would go to $70 or even a little bit lower. But now the sanctions threat is real and less than two months in front of us, that will transform the market into much higher prices," Fereidun Fesharaki, founder and chairman of consultancy FACTS Global Energy, told CNBC's Akiko Fujita at the CLSA Investors' Forum in Hong Kong.

US West Texas Intermediate crude oil futures traded at about $68 per barrel on September 11, while Brent crude futures hovered near $78.

"The higher price will only be blamed on the Trump administration. There's not much anybody can do if the sanctions come in and are enforced properly," he added.

Trump is attempting to throttle Iran’s economy to the point where Tehran is forced to enter negotiations during which Washington will try to reshape the role the Islamic Republic plays in Middle East affairs and readdress its nuclear and ballistic missile development programmes.

Sanctions are also being targeted at Iran’s financial, automotive, aviation and metals sectors, among others. The US State Department has asked all buyers of Iranian oil to completely cut their purchases to avoid American sanctions.

China, Turkey and India are among countries to so far refuse to cooperate with that request, while South Korea and Japan are two countries that have agreed to it. European buyers too have been sharply reducing their purchases of Iranian oil.

Void not easily filled
However, Iran as the third biggest oil exporter in OPEC, is one of the largest crude exporters in the world and cutting off its supplies entirely would push oil prices above $100 per barrel because other major producers could not easily fill the void, Fesharaki pointed out.

Trump in July urged OPEC and Russia to ramp up supplies to fill the void created by the removal of Iranian oil from the market, but they don't have the spare capacity to produce much more oil, Fesharaki said.

US shale oil producers are also running close to their maximum capacity, he said.

Iran storing oil on supertankers
Meanwhile, it emerged on September 11 that Iran is starting to store oil on its fleet of supertankers in a revival of a strategy it deployed under previous sanctions levied by Washington during the Obama administration.

“We can expect floating storage to increase under the growing impact of US sanctions in the coming months,” Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas in London, told Bloomberg.

So far, most of the ships in question—all of which are Iranian owned—have reportedly only been holding crude at sea for a few weeks, rather than for months at a time as they did during 2012-2016 sanctions. Almost all Iran’s main customers purchased fewer Iranian barrels in August than they did in April, the month before Trump said sanctions were being reimposed.

The buildup of floating storage underscores the challenges Iran faces in finding buyers for its oil.

“Iranian exports are falling fast,” Amrita Sen, chief oil analyst at Energy Aspects Ltd., said in a note to clients. Shipments are “set to average as little as 1.5 MMbpd in September according to the preliminary loading program, compared to around 2.8 MMbpd of oil exports in April and May,” she said.

September 10 saw Business Standard report that Iraq replaced Saudi Arabia in August as the top oil supplier to India, as refiners turned to Iraqi barrels to compensate for a lower intake of Iranian oil ahead of US sanctions.

The US has agreed to consider sanctions waivers on India importing Iranian oil but has said it must eventually reduce such shipments to zero.

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