1. Keep Iran deal in place
Fears that the US will reimpose sanctions on Iran when the nuclear deal comes up for review again next month are adding to uncertainty in the market. The Obama administration’s agreement with Iran has boosted production from the nation by more than 1mn bpd. Seventeen respondents to a Bloomberg survey of oil-market analysts saw on average a 50-50 chance of a sanctions “snap-back,” which could halt anywhere as much as 800,000 bpd of exports from Opec’s third-largest producer within the next six months.
2. Lift sanctions on
Venezuela
The South American nation – and Opec member – has seen its output decline rapidly since the US and other nations imposed tougher financial sanctions to punish President Nicolas Maduro. Among the list of people subject to the sanctions are the former chief financial officer for state-owned Petroleos de Venezuela SA. In a partial response to sanctions, Maduro has introduced a cryptocurrency based on the nation’s oil reserves, the largest in the world, although the US has warned that may also be subject to sanctions.
3. Repeal the Jones Act
Section 27 of a law enacted in 1920 requires that goods transported by ship between US ports be carried on vessels built and flagged in the US and owned and manned by US citizens. That drives up the cost of shipping US crude from the Gulf Coast, for example, to refineries on the East Coast, which often use international oil instead. Arizona Republican Senator John McCain, among others, has called for the act to be annulled.
3 1/2. Just talk
Oil prices fell 1.6% to $67.70 immediately following Trump’s tweet. Maybe the most effective thing he can do in the near term is exactly what he is doing - talking.
US President Donald Trump delivers remarks during an ‘Unleashing
American Energy’ event at the Department of Energy in Washington on June 29, 2017. Fears that the US will reimpose sanctions on Iran when the nuclear deal comes up for review again next month are adding to uncertainty in the market.
Who’s to blame for costly oil: Saudi, Russia and Trump himself
Bloomberg
New York
Rising oil prices are now the latest target in President Donald Trump’s cross-hairs. The nation’s tweeter-in-chief complained on Friday about Opec fuelling an “artificially Very High” cost for crude that he said “will not be accepted!”
So what’s behind the jump in prices? Market outcomes, like success, can claim a thousand fathers, but here’s a potential rogue’s gallery for Trump following Brent crude’s move to almost $75 a barrel on Thursday, its highest level in more than three years:
Saudi Arabia
Trump’s right on this one. The world’s biggest oil exporter has signalled it wants to push prices even higher, to around $80 a barrel, as it seeks to fund the expansive (and expensive) economic agenda of Crown Prince Mohammed bin Salman and support the valuation of state energy giant Aramco before an initial public offering. The kingdom spearheaded the successful effort by Opec, Russia and other major producers to curtail global supply and boost prices. In a meeting last week, oil ministers signalled a willingness to see prices rise further.
Russia
Saudi Arabia’s most important ally in cutting output has backed extending the effort through the end of this year. Meanwhile, tensions are rising between the West and the world’s largest crude producer. The US and Europe announced tough sanctions on Russia in recent weeks, including limits hitting oligarchs in the energy sector, although Trump did reverse a plan earlier last week to impose more restrictions.
The Iran deal
Fears that Trump will reimpose sanctions on Iran when the nuclear deal is reviewed, largely arising from the president’s public comments, are adding to uncertainty in the market. The Obama administration’s agreement with Iran has boosted production from the nation by more than 1mn bpd. A Bloomberg survey of oil-market analysts found a 50-50 chance of a sanctions “snap-back,” which could halt as much as 800,000 bpd of exports from Opec’s third-largest producer within six months. Watch prices rise then.
Venezuela meltdown
This Opec member has seen its output decline amid political and economic strife. Trump has added to the pressure, with a drive to impose tough sanctions to punish President Nicolas Maduro. Among those hit by sanctions are the former chief financial officer for the state-owned oil producer, Petroleos de Venezuela SA. A cryptocurrency introduced by Maduro, based on the nation’s massive oil reserves, may also face sanctions, the US has warned.
Trade wars
Trump’s tough trade talk, and tit-for-tat tariffs between the US and China, have roiled global markets and raised the spectre of further restrictions, at a time when American oil and gas exports are rising. In March, the industry said a new White House levy on steel imports could increase the cost of steel for wells by 25% and discourage pipeline construction as well.
And about those pipelines
The Permian Basin, the heart of the shale boom, is running into shortages with labour, equipment and, perhaps most critically, pipeline capacity. The output above pipeline space could grow to almost 1mn barrels a day in the year ahead, with no significant new pipes coming online until the second half of 2019.
Pipes aren’t the only things carrying oil. The Jones Act – Section 27 of a law enacted in 1920 requires that goods transported by ship between US ports be carried on vessels built and flagged in the US and owned and manned by US citizens. That drives up the cost of shipping US crude from the Gulf Coast, for example, to refineries on the East Coast, which often use international oil instead. Arizona Republican Senator John McCain, among others, has called for the act to be annulled.
Finally, the world’s consumers can blame themselves. Global oil demand likely climbed by 2.6mn bpd in this year’s first quarter, the biggest year-over-year jump since 2010, Goldman Sachs Group Inc said on Thursday. Rising consumer spending as well as cold weather in Europe and the US helped boost demand, keeping Brent on track to reach $80 in the coming months, the Goldman analysts said.
Meanwhile, there’s one lever Trump could pull to tamp down oil prices: releasing crude from the US Strategic Petroleum Reserve. The emergency supply currently holds about 665mn barrels, according to the Energy Department. The backup has been tapped in the past to deal with market disruptions such as Libya’s civil war and Hurricane Katrina.
