Last week the Trump administration announced that it will not be renewing six-month waivers granted to eight countries to continue buying limited quantities of Iranian oil, a move that shocked experts and sent the global oil market up for a bumpy week. Trump is walking a tightrope, as he tries to completely cut off Iran from international oil markets and thereby put the nation’s economy under pressure to push Tehran to bow to U.S. demands while also attempting to keep gas prices low in the United States.
This was already a tough balance to strike, but it has been made nearly impossible now that it’s been discovered that Russia has been exporting contaminated crude oil, clogging up European refineries and making an already fragile oil market even more volatile than before. Last week, after crude oil coming out of the Ural Mountains through the Druzhba pipeline was discovered to be contaminated, European oil refineries stopped importing oil not just from that region but also from Russia as a whole, impacting exports from the Ust-Luga export terminal in the Baltic region as well.
New reporting shows that the oil was apparently “deliberately contaminated” at the private Samaratransneft terminal according to Russia’s oil pipeline operator Transneft. Overall, the stemmed slow of Russian crude amounts to a approximately 1.5 barrels a day of heavier crude now missing from the marketplace. Add this to the vast quantities of Iranian oil that the U.S. hopes to choke off, and there’s no way that the market won’t feel that squeeze.
Oil prices have already been rising this year, but last week’s announcement that the Trump administration would be ending Iranian crude waivers, known as “significant reduction exceptions”, send crude benchmarks even higher. Currently, the price of gas has risen by almost 30 percent since the beginning of the year and is now just 10 cents away from reaching the peak price from 2018. Related: U.S. Pipeline Boom Could End In Crisis
There is a particular squeeze on heavier oil, with heavier crude from Russia compromised, and heavy Venezuelan crude sanctioned on top of Iranian oil sanctions and issues with other heavy crude producers like Angola, which faces its own difficulties in output. Countries that continue to produce at high volumes, like the United States, are supplying a much lighter crude which does not satisfy the same sectors of the market. As such, heavy crude prices have borne the brunt of the squeeze, edging higher and higher.
Further complicating the matter, Organization of the Petroleum Exporting Countries (OPEC) has showed no indication--in spite of Trump’s prodding--that they will pump more oil to offset the loss of crude thanks to U.S. sanctions on Iran and Venezuela, not to mention the contaminated Russian crude. Representatives from OPEC nations including Kuwait and Saudi Arabia have gone on record to say that they will make no immediate move to increase oil production, and that their primary goal is simply to ensure stable oil prices and a balanced global market.
So far, the United States is sticking to its resolution to end sanctions waivers, but many nations are doing their best to change Trump’s mind. China and Turkey have publicly and strongly criticized the severity of the sanctions, accusing the U.S. of overstepping, and some analysts speculate that the two nations may defy U.S. sanctions on Iran outright. Meanwhile, previous waiver recipients India, South Korea and Japan have lobbying campaigns in full swing to change minds in Washington to extend their significant reduction exceptions. There have also been a fair number of opinion column inches dedicated to whether India will buck U.S. orders as well. Italy, Greece and Taiwan, for their part, have no need to invest in their own lobbying as they never used their waivers in the first place.
By Haley Zaremba for Oilprice.com
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