The oil market is set to tighten further before the end of this year - a sign that OPEC's early response to boost supply may not be enough to offset a significant (possibly 1 million bpd barrel) loss of crude oil supply from Iran, Helima Croft, RBC Capital Markets global head of commodity strategy, told CNBC on Friday.
On Monday, August 6, the first set of U.S. sanctions on Iran will snap back, so we will be probably looking at tougher actions over August and September, Croft said.
The question regarding Iranian oil supply now is, can the Trump Administration get everybody else except China, which has already said it won't recognize U.S. sanctions on Iran, out of the market, according to the strategist.
According to two officials, the U.S. hasn't been able to persuade China to reduce Iranian oil purchases, but Beijing has reportedly agreed not to increase its oil imports from Iran, Bloomberg reports.
The U.S. can get Europe out of the market, and India-Iran's second-largest oil customer after China-will likely reduce Iranian purchases even if it doesn't get entirely out the market, Croft told CNBC.
The combination of crumbling Venezuelan oil production and the aggressive U.S. efforts to curtail Iranian exports is going to tighten the market. OPEC has responded with boosting supply, but we are yet to see how much Iranian supply would be choked off, Croft said, adding that "it's going to be very significant." Related: The Winners And Losers This Earnings Season
"All signals are from the White House that they are being very tough with foreign refineries, they're going to their banks, they're going to the insurance companies and simply saying 'do not support the trade with Iranian crude," Croft said.
According to a Reuters poll earlier this week, 44 economists and analysts expect the U.S. sanctions to take between 500,000 bpd and 1 million bpd of Iranian crude oil off the market. The return of sanctions on Iran was one of the reasons why the experts raised again-for a tenth consecutive month-their oil price forecasts for WTI Crude and Brent Crude prices, which are now expected to average $67.32 a barrel and $72.87 a barrel this year, respectively.
By Tsvetana Paraskova For Oilprice.com
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Comments
They were proven wrong when they kept talking about the IPO of Saudi Aramco and the right price and the time of the sale and I kept telling them for the last eight months on the pages of oilprice.com that Saudi Arabia will eventually withdraw the IPO of Saudi Aramco altogether for two reasons. One is risk of US litigation and the other is Saudi proven oil reserves.
I was proven right and they were proven wrong. It will be the same case with US sanctions on Iran.
Mark my words. The US sanctions will fail miserably and Iran will not lose a single barrel of its oil exports for two cardinal reasons.
One reason is that the overwhelming majority of nations of the world including US allies and major buyers of Iranian crude such as the European Union (EU),China, India, Japan, Turkey and even South Korea are against the principle of US sanctions in general and particularly the sanctions on Iran. They are not going to comply with US sanctions and reduce their purchases of Iranian crude.
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.
Moreover, the Trump administration will fail miserably in persuading even its allies to cut or reduce their Iranian crude imports. President Trump has singlehanded antagonized the whole world leaving the United States without any allies or friends so he can’t expect them to be charitable towards him.
The United States must think it lives on a different planet from the rest of the world. It escalates tension with China by imposing tariffs on Chinese exports to the US and still has the temerity to ask China to comply with US sanctions by halting its imports of Iranian crude.
China’s crude oil imports are on the rise and with the United States intensifying its trade war against China, the Chinese would be more than happy to buy more Iranian crude as a way of retaliating against Washington and also bolstering the petro-yuan.
In June 2018 India imported 705,000 barrels a day (b/d) of Iranian crude compared with 464,000 b/d in June 2017, a 52% rise. This is not the action of a country planning to comply with US sanctions on Iran.
Japan and South Korea are going to seek a waiver from the US to continue buying Iranian crude and will most probably get it. Even if both of them stop buying Iranian crude completely which is an improbability if there is one, China will buy their share.
Moreover, in early July, the remaining signatories to Iran nuclear deal declared their support for Iran in the face of the U.S. pull-out. The UK, France, Germany, Russia, and China assured Tehran that they will continue buying Iranian crude and maintain trade and investment relations despite the eventual re-introduction of US sanctions.
My projection for oil prices is that they will go beyond $80 a barrel before the end of this year buoyed by positive fundamentals in the global oil market.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
China will be implementing sanctions on US oil and they will be buying all the Iranian crude they can get. The US crude will get sold elsewhere.
How will this change the current supply/demand equation?
thanks.