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Home Business News Around the World

Oil Prices hit 6-months high, as Trump moves to completely stop Iran’s oil export

Bamidele Samuel Adesoji by Bamidele Samuel Adesoji
April 23, 2019
in Around the World, Business News, Politics
Oil revenue, Trouble as crude oil price drops

Crude Oil Prices

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Oil prices have once again continued bullish run by spiking to a six-month high. Specifically, Brent crude futures jumped more than 3 percent to $74.36 per barrel in the early hours of today, hitting the highest level since November 1st, 2018.

Also, West Texas Intermediate crude futures rose by $1.70 to $65.70 per barrel, the highest level since October 31st, 2018.

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Similarly, the current surge in oil prices has been attributed to President Trump’s announcement to ratchet up energy sanctions against Iran.

Apparently, this isn’t the first time the Trump Administration will be distorting the movement in global oil prices. Recall, that oil prices recently fell in March after President Trump launched twitter tirade at OPEC.

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Nairametrics had also reported a five-month high in oil prices following the U.S sanctions and news of a potential slowdown in crude production out of Venezuela.

Trump aims to drive Iran’s oil export to zero by ending sanctions waivers 

Trump’s administration is quickly accelerating its goal of driving Iran’s oil exports to zero, by ending the sanctions exemptions previously granted to some of the Islamic Republic’s biggest customers.

President Trump withdrew from a 2015 nuclear accord with Iran in May last year, thereby restored wide-ranging sanctions on the Iranian economy later in the year. At the time, the Trump Administration granted six-month waivers to eight countries which allowed them to continue importing limited quantities of crude oil from Iran.

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Now, contrary to wide expectations of wavers’ extension for these countries, Trump surprisingly disclosed that any country still importing oil from Iran will be subject to U.S. sanctions beginning on May 2.

“President Donald J. Trump has decided not to reissue Significant Reduction Exceptions (SREs) when they expire in early May,” the White House said in a statement. “This decision is intended to bring Iran’s oil exports to zero, denying the regime its principal source of revenue.”

The Secretary of State Mike Pompeo, also disclosed during a press conference yesterday

“We are going to zero. How long we remain there, at zero, depends solely on the Islamic Republic of Iran’s senior leaders. We’ve made our demands very clear to the ayatollah and his cronies.”

Declining waivers extension is expected to further tighten the market

Different episodes have characterised the rise in oil prices. As it seems, it appears more episodes will be unveiled in coming weeks. Since the indication of Trump’s administration to drive Iran’s oil export to zero, Brent crude has been trading above $70 a barrel.

Essentially, the recent rise in oil prices hinges on the increasing tight nature of the oil market due to OPEC‘s supply cut. In other words, the global supply of crude oil has dropped significantly, exposing the market to the risk of demand shortage, therefore distorting prices. All things being equal, declining waivers extension may further drive prices higher in the interim.

According to the International Energy Agency (IEA):

“Tightness in the oil market, however, is not just a supply story. In recent months, the resilience of demand has received less attention than the vicissitudes of production, but it is very important too.”

However, Trump is defiant as Saudi and UAE set to increase supply 

Following the official announcement of waivers’ withdrawal, Trump tweeted that Saudi Arabia and other OPEC members will “more than makeup” for any drop in Iranian supplies.

Saudi Arabia and others in OPEC will more than make up the Oil Flow difference in our now Full Sanctions on Iranian Oil. Iran is being given VERY BAD advice by @JohnKerry and people who helped him lead the U.S. into the very bad Iran Nuclear Deal. Big violation of Logan Act?

— Donald J. Trump (@realDonaldTrump) April 22, 2019

Saudi Arabi and UAE have reportedly assured the U.S. they will ensure the market has an appropriate supply. According to Saudi Energy Minister Khalid al-Falih:

“The kingdom will coordinate with fellow oil producers to ensure adequate supplies are available to consumers while ensuring the global oil market does not go out of balance.”

Meanwhile, it has been reported that three of the countries that received the exemptions (Greece, Italy and Taiwan) have already cut their imports from Iran to zero.

Also, there are expectations that the Trump’s administration is likely to extend the waivers to China, India, Japan, South Korea and Turkey, all of which took advantage of the waivers during the first six-month window that began in November.

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Tags: Crude oil pricesoil priceOPEC CutsOrganisation of the Petroleum Exporting Countries (OPEC)

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