Oil briefly hit $80 for the first time since 2014

Frederick Owens
May 18, 2018

"Even if only 200-300 kb/d of Iran exports are at risk by year-end, OPEC is not likely to preempt this loss, only react to it", Goldman said as reported by Zero Hedge.

The Paris-based IEA said potential supply disruptions in Iran and Venezuela have prompted oil traders to focus on geopolitics rather than fundamentals, warning that any supply cuts could cause prices to rocket.

In a sign that investors could be looking for safe harbor amid geopolitical turmoil, the Russell 2000 - an index of small-cap stocks more insulated from global trade - hit an all-time high. Analysts surveyed by S&P Global Platts had forecast a climb of 104 billion cubic feet and on average over the last five years for the same week, inventories rose by 67 billion cubic feet.

For China, the looming trade war with the USA - the world's biggest economy - is deemed a much bigger problem. The French company won't risk investing in Iran following the return of USA sanctions unless it can obtain a waiver. This is a key step, given that a considerable volume of crude oil from Iran has typically been destined for Europe, while at the same time Iran heavily depends on supplies and access to financing from European companies.

World oil prices have surged more than 70% over the past year as demand has risen sharply while production has been restricted by the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and other producers, including Russian Federation. This has supported a 70-percent price rise in Brent over the past 12 months, and the benchmark could rise further as OPEC keeps on the same course. "For another, China may not need to import that much of oil at all", she said. Yesterday drawdown in USA crude Oil inventories helped the buyers as well, because it means that demand has picked up. "So, cutting imports from a single supplier will not be a problem", he added.

The upward pressure intensified following the US' decision to withdraw from the Iran deal.

Brent Crude Oil broke $80 an hour ago and it is staying there.

Goldman Sachs, though, said even with a slowdown in demand and soaring USA output, global oil markets would remain tight.

Oil hits high

In the short term, crude's strong gains may filter through the downstream petrochemical markets, ICIS aromatics analyst Jenny Yi said. This (rising crude prices) is not a good development.

"I think when you get above $80, it is not a healthy price either".

However, he did see that happening at the current level. "Surely initially it will be hard to make payments to Iran".

"We can probably expect further devaluation of currency and panic in the market".

Chinese foreign ministry spokesperson Geng Shuang made clear last week that Beijing would keep doing business with Tehran: "We will continue with our normal and transparent practical cooperation with Iran on the basis of not violating our worldwide obligations".

Danish shipping giant Maersk Tankers said Thursday it would cease its activities in Iran, while German insurer Allianz has also announced it plans to wind down its business deals there. "But considering [the] effects needs more time". The reason in part has been the aforementioned efforts by other countries to uphold a deal despite the absence of the US.

Pouyanne said Iran had raised production by a million barrels a day after sanctions were lifted under the 2015 Iran deal.

Chinese telecoms equipment maker ZTE, for instance, had to cease major operations after it was hit with a ban on acquiring crucial American technology for allegedly violating U.S. sanctions against North Korea and Iran. It's the impact of oil price on fiscal deficit that we have to be concerned with.

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