Oil prices spike more than 3% on reports that US will end waivers for Iran sanctions

KEY POINTS
  • Brent crude futures surged more than 3 percent to over $74 per barrel on Monday morning during Asia hours, while U.S. crude futures rose around 2.67 percent to $65.71 per barrel.
  • The oil spike followed reports that U.S. Secretary of State Mike Pompeo will announce that from May 2, the State Department will no longer grant sanctions waivers to any country that is currently importing Iranian crude or condensate.
GP: Iran Oil Tanker 190121
The oil tanker ‘Devon’ prepares to transfer crude oil from Kharg Island oil terminal to India in the Persian Gulf, Iran, on March 23, 2018.
Ali Mohammadi | Bloomberg | Getty Images

Oil prices spiked by more than 3 percent on Monday — past highs not seen since November 2018 — after reports that Washington is set to announce that all buyers of Iranian oil will have to end imports, or be subject to U.S.sanctions.

Brent crude futures surged more than 3 percent to over $74 per barrel on Monday morning during Asia hours, while U.S. crude futures rose around 2.67 percent to $65.71 per barrel.

That price spike followed a report by the Washington Post, citing two unnamed State Department officials, that U.S. Secretary of State Mike Pompeo will announce that “as of May 2, the State Department will no longer grant sanctions waivers to any country that is currently importing Iranian crude or condensate.” Condensate is an ultra-light form of crude oil.

Following that report, Reuters confirmed the news, citing a source familiar with the matter.

VIDEO03:22
Oil prices could hit $80 per barrel in first half of 2019: JBC Energy

Brent prices have risen by more than a third this year, while U.S. crude has soared more than 40 percent.

The U.S. reimposed sanctions in November on exports of Iranian oil after U.S. President Donald Trump unilaterally pulled out of a 2015 nuclear accord between Iran and six world powers. Washington, however, granted Iran’s eight main buyers of oil, mostly in Asia, waivers to the sanctions which allowed them limited purchases for an additional six months.

Impact on India

The eight buyers are China and India — Iran’s biggest customers — as well as JapanSouth KoreaItalyGreeceTurkey and Taiwan.

“The sanctions (are) obviously one of the major movers, I think, which is influencing prices,” said Daryl Liew, head of portfolio management at financial services company Reyl Singapore. He also pointed to stronger-than-expected economic growth data from China last week, which could be driving demand expectations.

Of the buyers of Iranian oil, he said India could suffer the most from Washington’s move.

“I think India is probably one of the key potential countries that might suffer from a higher oil price, in terms of their current account deficit, for example. And that’s going to be basically putting pressures on inflationary pressures as well,” Liew said, speaking on CNBC’s “Street Signs” on Monday.

“No doubt the Indian central bank has … turned to a more dovish stance in recent meetings. But if oil prices continue to hit higher, and inflationary pressures come back into the picture again for India especially, then the central bank probably has to reverse the dovish moves,” he concluded.

Tightening supplies, Libya conflict

That development on sanctions comes as global oil supply is already tightening, with OPEC leading supply cuts since the beginning of this year, to prop up crude prices.

In the U.S., energy firms last week reduced the number of oil rigs operating by two, to 825, General Electric’s Baker Hughes energy services firm said in its weekly report on Thursday.

VIDEO06:10
Oil prices likely to head higher as OPEC stands firm on production cuts, says RBC’s Helima Croft

Meanwhile, major OPEC oil producer Libya’s capital Tripoli was hit by a series of airstrikes and explosions over the weekend, in escalating violence that could threaten oil supply further.

The country has been torn by conflict since the fall of dictator Muammar Gaddafi in 2011. It was sent into fresh conflict in recent weeks after its eastern military leader ordered his forces to move in on the capital where the United Nations-recognized government sits.

Analysts and traders keep a close eye on Libya because its oil production has been one of the biggest wild cards in the oil market in recent years. Its output has fluctuated wildly as the nation’s southern oil fields have frequently gone offline amid fighting.

One analyst told CNBC on Monday that the Libya situation will put more pressure on oil prices, particularly if the conflict escalates.

“Libya is producing 1.1 million barrels per day. If things go wrong, immediately somewhere around 300,000 to 400,000 barrels per day of oil may be affected,” said Kang Wu, head of analytics for Asia at S&P Global Platts.

“A lot depends on how Saudi Arabia will react to the situation — they have surplus capacity — but supply concerns will keep pressure on oil prices in the short term, ” Wu added.

— Reuters and CNBC’s Tom DiChristopher contributed to this report.

Oil prices hover close to 2019 highs on OPEC output cuts, U.S. sanctions

REUTERS

U.S. sanctions against oil producers Iran and Venezuela are also boosting prices, although traders said the market may be capped by rising U.S. output.

U.S. West Texas Intermediate (WTI) futures were at $59.14 per barrel at 0746 GMT, up 5 cents from their last settlement and close to the 2019 high of $59.23 reached the previous day.

Brent crude oil futures were up 20 cents at $67.74 per barrel, also close to this year’s peak of $68.14 marked late last week.

In China, Shanghai crude futures, launched in March last year, bounced 4.5 percent from their last close to 468.2 yuan ($69.71) per barrel, also near 2019 highs of 475.7 yuan a barrel hit during a brief spike in February.

In dollar-terms, this pushed Shanghai crude into a premium over Brent.

The Organization of the Petroleum Exporting Countries (OPEC) on Monday scrapped its planned meeting in April, effectively extending supply cuts that have been in place since January until at least June, when the next meeting is scheduled.

OPEC and a group of non-affiliated producers including Russia, known as OPEC+, started withholding supply to halt a sharp price drop in the second-half of 2018, when markets came under pressure from surging output as well as an economic slowdown.

“The OPEC+ deal has brought stability to crude prices and signs of an extension have taken crude higher,” said Alfonso Esparza, senior market analyst at futures brokerage OANDA.

Prices have been further supported by U.S. sanctions against oil exports from Iran and Venezuela, traders said.

Because of the tighter supply outlook for the coming months, the Brent forward curve has gone into backwardation since the start of the year, meaning that prices for immediate delivery are more expensive than those for dispatch further in the future, with May Brent prices currently around $1.20 per barrel more expensive than December delivery Brent.

Outside OPEC, analysts are eyeing U.S. crude oil production, which has soared by more than 2 million barrels per day (bpd) since early 2018, to around 12 million bpd, making the United States the world’s biggest producer ahead of Russia and Saudi Arabia.

Weekly output and storage data will be published by the Energy Information Administration (EIA) on Wednesday.

On the demand-side, there is concern that an economic slowdown will erode oil consumption.

Bank of America Merrill Lynch said in a note that economic “risks are skewed to the downside” and that “we forecast global demand growth of 1.2 million bpd year-on-year in 2019 and 1.15 million bpd during 2020”.

The bank said it expected “Brent and WTI to average $70 per barrel and $59 per barrel respectively in 2019, and $65 per barrel and $60 per barrel in 2020.”

Reporting by Henning Gloystein; Editing by Richard Pullin and Joseph Radford

Oil near 2019 highs amid OPEC cuts, but economic slowdown applies brakes

CNBC

  • Both international Brent and U.S. crude futures were higher.
  • Analysts said that a global economic slowdown was preventing prices from surging beyond the 2019 highs seen this week.

A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.

Getty Images
A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.

Oil prices hovered close to 2019 highs on Thursday, bolstered by OPEC-led supply cuts and U.S. sanctions on Venezuela and Iran, but were prevented from rising further by slowing growth in the global economy.

U.S. West Texas Intermediate (WTI) crude oil futures were at $57.33 per barrel at 0256 GMT, 17 cents, or 0.3 percent, above their last settlement, but below their 2019 high of $57.55 reached the previous day.

International Brent crude futures were at $67.14 per barrel, 6 cents above their last close and not far off their 2019 peak, hit the day before, of $67.38 per barrel.

Analysts said that a global economic slowdown was preventing prices from surging beyond the 2019 highs seen this week.

“Slowing economic growth will invariably lead to weakness in fuel consumption thus eroding bullish gains for oil prices,” said Benjamin Lu of brokerage Phillip Futures in Singapore.

Despite the slowdown in economic growth that emerged in late 2018, oil prices have been driven up this year by supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC).

OPEC, as well as some non-affiliated producers such as Russia, agreed late last year to cut output by 1.2 million barrels per day (bpd) to prevent a large supply overhang from growing.

Another price driver has been U.S. sanctions against oil exporters Iran and Venezuela.

“Although there is no lack of resources, there is an increasing lack of access to them,” Britain’s Barclays bank said of the sanctions on Wednesday.

The main factor keeping oil prices from rising even further is soaring U.S. oil production, which rose by more than 2 million bpd last year, to a record 11.9 million bpd.

The swelling output has resulted in rising U.S. oil inventories.

U.S. crude oil stocks rose by 1.3 million barrels in the week to Feb. 15 to 448.5 million, according to a weekly report by the American Petroleum Institute on Wednesday.

Official oil inventory and production data is due to be published by the U.S. Energy Information Administration (EIA) after 1800 GMT on Thursday.

Oil dips as soaring US production outweighs talk of OPEC output cuts

CNBC

  • Oil remains in ample availability despite U.S. sanctions on Iran fuel exports going into effect.
  • U.S. crude output has tripled since 2008, with the Energy Information Administration expecting it to break through 12 million barrels per day by mid-2019.

Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Spencer Platt | Getty Images
Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Oil prices dipped on Thursday as record U.S. crude output heightened concerns of a return of global oversupply, stoking talk from within OPEC that production curbs may become necessary once again to prevent a glut.

Front-month Brent crude oil futures were at $71.93 a barrel at 00301 GMT, down 14 cents from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $61.68 per barrel, virtually flat from their last settlement.

Benjamin Lu of brokerage Phillip Futures in Singapore said that overall, “Oil prices continue to demonstrate…bearish influences amidst market concerns of rising global inventories… (and as) increasing output levels threaten to upset supply fundamentals in Q4 2018.”

A group of producers around the Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC) as well as Russia decided last June to relax output curbs in place since 2017, after pressure from U.S. President Donald Trump to reduce oil prices and make up for supply losses from Iran.

But with Iran sanctions now in place and oil still in ample availability, OPEC-led production cuts next year cannot be ruled out, two OPEC sources said on Wednesday.

“OPEC and Russia may use cuts to support $70 per barrel,” said Ole Hansen, head of commodity strategy at Saxo Bank.

“The introduction of U.S. sanctions earlier this week against Iran failed to lift the market given the announcement that eight countries, including three of the world’s biggest importers, would receive waivers to carry on buying Iranian crude for up to six months,” Hansen said.

Concerns over potential oversupply

At the heart of rising global output has been a relentless increase in U.S. crude production, which hit a record 11.6 million barrels per day (bpd) in the week ending Nov. 2, according to Energy Information Administration (EIA) data released on Wednesday.

That’s a threefold increase from the U.S. low reached a decade ago, and a 22.2 percent rise just this year. It makes the United States the world’s biggest producer of crude oil.

More U.S. oil will likely come. The EIA expects output to break through 12 million bpd by mid-2019, thanks largely to a surge in shale oil production.

Meanwhile, U.S. crude inventories rose by 5.8 million barrels in the week ending Nov. 2, to 431.79 million barrels, the EIA said.

Crude stocks moved back above their five-year average levels in October.

Production has not just risen in the United States, but also in many other countries, including Russia, Saudi Arabia, Iraq and Brazil, stoking producer concerns of a return of oversupply that depressed oil prices between 2014 and 2017.

“Producers are concerned about the potential oversupply … after EIA reported that crude inventories rose by 5.8 million barrels,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

Oil prices fall amid supplied market, Iran sanction exemptions

CNBC

  • Oil prices fell on Wednesday, extending losses from the previous session, with markets well supplied amid rising production and U.S. sanction waivers that allow Iran’s biggest customers to continue buying its crude.
  • Front-month Brent crude oil futures were at $71.85 per barrel at 0115 GMT, down 28 cents, or 0.4 percent, from their last close.
  • U.S. West Texas Intermediate (WTI) crude futures were at $61.76 per barrel, down 45 cents, or 0.7 percent, from their last settlement.

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David McNew | Getty Images

Oil prices fell on Wednesday, extending losses from the previous session, with markets well supplied amid rising production and U.S. sanction waivers that allow Iran’s biggest customers to continue buying its crude.

Front-month Brent crude oil futures were at $71.85 per barrel at 0115 GMT, down 28 cents, or 0.4 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $61.76 per barrel, down 45 cents, or 0.7 percent, from their last settlement.

The increasingly well supplied market has turned sentiment, which until early October was largely bullish, pushing Brent to four-year highs of more than $86 per barrel ahead of the Iran sanctions.

Brent and WTI have lost 17.4 and 19.7 percent in value respectively from their most recent peaks in early October.

U.S. bank J.P. Morgan said “part of the recent sell-off in oil was due to excessive crude in the physical markets…from elevated production from OPEC whilst Iranian supply was still in the market despite reduction in reported exports.”

Fawad Razaqzada, market analyst at futures brokerage Forex.com, said he had become “quite bearish on oil prices” due to lower demand growth forecasts, higher supply and Iran sanctions waivers.

According to Refinitiv Eikon data, Iranian crude exports have fallen to 1 million barrels per day (bpd) so far in November, down from almost 2 million bpd in October and around 3 million bpd in mid-2018.

U.S. bank Morgan Stanley said “oil market fundamentals have softened (as) supply continues to come in higher-than-expected, particularly from the U.S., Middle East OPEC, Russia and Libya.”

Output from the world’s top-3 producers Russia, the United States and Saudi Arabia, broke through 33 million bpd for the first time in October, meaning these three countries alone now meet more than a third of the almost 100 million bpd of global consumption.

Iraq, the second-largest producer within the Organization of the Petroleum Exporting Countries (OPEC) behind Saudi Arabia, is targeting production capacity of 5 million bpd in 2019, up from 4.6 million bpd currently, Oil Minister Thamer Ghadhban said on Tuesday.

“The market is well supplied, and we see a balanced rather than tight market ahead. This no longer supports our $85 per barrel year-end and 1H19 forecast,” Morgan Stanley said.

Instead, the bank said it expected Brent to average around $77.5 per barrel to mid-2019.

With production rising, inventories are swelling.

U.S. crude stocks climbed by 7.8 million barrels in the week ending Nov. 2 to 432 million, data from the American Petroleum Institute showed on Tuesday.

Despite the well supplied market, Razaqzada warned that it would be “increasingly costly for inefficient producers to maintain output at current levels”.

Venezuela’s crude production was in “free-fall” and could soon drop below 1 million bpd, the International Energy Agency’s Executive Director Fatih Birol warned on Tuesday, down from the more than 2 million bpd it averaged last year.