Saturday, 15 December, 2018

Crude Oil Price Analysis: Risk Premiums Unwind as US Mulls Waivers

The Kiira EV Smack was built by students of Makerere University. FILE Ugandan-made Kiira EV Smack. Tehran has been keen to fund Kampala’s Kiira Electronic Vehicle Project
Nellie Chapman | 10 October, 2018, 20:56

The sanctions on Iran's oil sector are not due to hit until November 5, but several key buyers in Europe and Asia have already cut purchases in recent months under pressure from Washington.

The current stance differs drastically from the administration's position just four months ago, when Trump was pressuring his administration to fully enforce USA sanctions on Iran. "We will be guided by our national interest", he added.

The first piece of bearish news weighing on prices today is the report that a USA government official said on Friday that the country could consider exemptions for nations that have already shown efforts to reduce their imports of Iranian oil. It is likely other buyers of Iranian oil - the EU, Japan and South Korea - may also be allowed to continue to buy from Iran for some more time.

Iranian crude exports, which reach some 2.5 million barrels per day normally, have plunged by over half a million bpd and are expected to dive further when expanded sanctions on oil take effect next month, depriving Tehran of its main source of income.

Iran's crude exports fell further in the first week of October, according to tanker data and an industry source, as buyers sought alternatives ahead of US sanctions that take effect on November 4. Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore, said there was also "chatter that Saudi Arabia has replaced all of Iran's lost oil".

Citing the Kremlin, Reuters reported that Iranian Foreign Minister Mohammad Javad Zarif and his Russian counterpart Sergei Lavrov discussed ways to enhance Tehran-Moscow energy cooperation over the telephone on Monday.

That is the longest streak of weekly cuts since October past year.

In May, US President Donald Trump announced America's withdrawal from the Iran nuclear deal.

"This is one of the single biggest supportive factors for crude", said analysts at JBC Energy of the U.S.re-imposition of Iran sanctions.

"Any country that makes such claims. just wants to display its support for the United States sanctions against Iran", Zanganeh was quoted as saying.

Although countries like Turkey, Russia, and China have indicated they will go ahead with their oil trade with Iran, the European Union will probably accede in a large measure, given the exposure of their companies to the US banking system.

Besides, New Delhi sought to get around the restrictions by supplying goods including wheat, soybean meal and consumer products to Iran in exchange for oil.

Oil prices have extended a rally on expectations the sanctions will test the Organization of the Petroleum Exporting Countries and other producers.

Has the simmering crude oil market peaked, even if for the time being?