Oil plays a definitive part in a country’s wealth in terms of foreign transactions and imports. Iranian crude surged to a three percent price hike, reaching a new high for 2019. The Trump administration started to get alarmed by the situation and announced that oil buyers need to end talks with Iran regarding imports within a week or face the consequences of facing US sanctions.
The Trump administration revealed that the US State Department will target the transactions for Iranian condensate or crude. By May 2, all countries trying to import the product will not be able to secure sanctions waivers. Brent crude oil futures rose from $72.67 last week to a staggering $74.38, showing a 3.4 percent rise of $2.41. The price hike reached its highest amount since November 2018. Meanwhile, US West Texas Intermediate crude futures witnessed an increase of three percent and reaching a total of $65.91 per barrel, a feat not achieved since October 2018. Two weeks ago, West Texas Intermediate already surpassed a high of $64.79 for this year.
Washington Post states in a report that a new policy by the Trump administration might be a factor for crude futures’ unexpected rise. While many analysts expect the US government to provide strict measures for the sanctions, not everyone assumed that they would cease to give out waivers. Tudor Pickering Holy equity strategist Michael Bradley states that crudes markets were shocked after the Trump administration made the announcement.
The White House allowed eight Iran oil buyers to make transactions for six months as an exemption when US President pulled out of the 2015 nuclear accords between the world powers and Iran. The US then re-imposed sanctions last November. The list of allowed oil buyers includes Turkey, Taiwan, Greece, Italy, Japan, South Korea, India, and China. The six-month waivers permitted Iran to export over one million oil barrels per day, which is down from over 2 and a half million last year.
The oil market continues to take a dip following Saudi Arabia’s recent production cuts. The cessation of sanction waivers hopes to prevent oversupply. As the top oil exporter in the world, Saudi Arabia is trying to make an effort to save at least 1.2 million barrels a day with the help of OPEC and other oil-producing countries like Russia.
Again Capital founding partner John Kilduff states that the sudden spike in oil price is due to Saudi Arabia’s production cuts. Kilduff further adds that the oil market is in a tight spot supply-wise, significantly affecting the market reaction. Brent crude oil price rose to 38 percent while US crude oil went up to 45 percent this year. The surge in oil price happened after the collapse in oil costs last year.
The White House has plans to work with the United Arab Emirates and Saudi Arabia, both OPEC members, to ensure that Iranian oil will cease to exist in the oil market to meet global demands. Khalid al-Falih, Saudi Arabia’s Minister for Energy, states that the Kingdom of Saudi Arabia is willing to work with other oil producers to ensure a stable world oil economy. OPEC members will hold a meeting by the end of June on whether they can lift the suspension on Iranian oil or continue ceasing sanction waivers.