Oil prices were essentially flat early on Friday morning in quiet trade, but were on track for their first weekly gain in four weeks as tension around a key Middle Eastern chokepoint lent support to the price of oil earlier this week.
At 08:07 a.m. EDT on Friday, WTI Crude was down 0.24 percent at $69.44, and Brent Crude was down 0.01 percent at $75.11.
The global crude oil supply picture indicates that the market is going to tighten further, while oil demand is still holding up pretty strong, Helima Croft, RBC Capital Markets managing director of global head of commodity, told CNBC’s Squawk Box on Friday.
The market right now is “very constructive for oil prices, particularly as we are going to the last quarter of the year”, with so many Iranian barrels coming off the market, Croft said.
With WTI Crude at around $70 a barrel now, the WTI price at the end of the year will very much depend on the Middle East, as there are many ‘intangibles’ including issues with key chokepoints in the Middle East, issues with shipping, issues with Iranian exports—there are a lot of factors that will come out and play in terms of where the price goes, Croft told CNBC.
Earlier this week, Saudi Arabia halted crude oil and oil product shipments via the Bab el Mandeb chokepoint in the Red Sea after an attack by the Iran-aligned Houthis on two Saudi tankers near the port of Hodeidah.
This Saudi halt of shipments via the chokepoint supported oil prices on Thursday, after they had stabilized on Wednesday when the EIA reported a draw in crude oil and another draw in gasoline inventories for the week to July 20. Crude oil inventories were 6.1 million barrels lower in July 16-20 than in the week before, when the EIA reported a surprise build that made the price rally stutter.
By Tsvetana Paraskova for Oilprice.com
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Still, my advice to analysts and authors of articles for oilprice.com and also for Helima Croft is not to keep parroting the same cliché by taking it for granted that US sanctions on Iran will lead to a loss of Iranian oil exports. A case in point, they still keep parroting that Saudi Arabia needs a high oil price for its IPO despite having been telling them for the last eight months that Saudi Arabia has virtually withdrawn its IPO.
Iran is not going to lose a single barrel of its oil exports as a result of US sanctions and I have repeatedly explained in my comments on their articles why US sanctions are doomed to fail.
One reason is that the overwhelming majority of nations of the world including US allies and major buyers of Iranian crude such as China, India, Japan, Turkey and South Korea are against the principle of US sanctions in general and particularly the sanctions on Iran because there is no legal justification for them. They resent the tendency of the United States to slap sanctions on any country with which it doesn’t see eye to eye. The latest threat of sanctions is against Turkey, a close NATO ally. Countries of the world are not going to comply with US sanctions against Iran and would challenge the US to impose sanctions on them.
The other reason is the petro-yuan which has virtually nullified the effectiveness of US sanctions and also provided a viable alternative to bypass the petrodollar altogether. Iran will be paid in petro-yuan for its oil exports to China, by euro for its exports to the European Union (EU) and by barter trade for its exports to India, Turkey and Russia.
Saudi Arabia’s halting of its oil shipments through the Bab al-Mandeb Strait after attacks by Houthi rebels on two of its oil tanker demonstrates the fragility of these four key chokepoints and how easy to deter oil tankers from passing through them.
Still, the attack on the Saudi oil tankers will not lead to a steep hike in oil prices for two reasons. One is that 75% of Saudi oil exports go to the Asia-Pacific region and therefore they don’t pass through the Bab al-Mandeb Strait.
The other reason is that Saudi Arabia could still bypass the Bab al-Mandeb Strait and export up to 4 mbd through an oil pipeline traversing the country from east to west at the port of Yanbu on the Red Sea originally built with Iraqi money to transport Iraqi crude during the Iran-Iraq war.
Saudi oil shipments from its oil terminal at Yanbu could go through the Suez Canal to the Mediterranean and thereon to Europe. That is why the impact of the incidents at the Red Sea on oil prices might not add more than $1-2 to abarrel of oil.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London