Oil prices ups and downs: Russian Federation wins if Iran loses

Charlene Craig
April 26, 2018

"Economies with high income elasticity of demand also have high price elasticities, suggesting oil may be capped at $80/b", oil analysts at Bank of America Merrill Lynch said.

Oil held losses below $68/bbl after French President Emmanuel Macron called for a new Iran nuclear deal to keep the US on board, raising speculation sanctions on the OPEC producer may be averted.

Growing U.S. demand, indicated by continued strong refinery utilization rates, is very supportive to prices, said Bob Yawger, director of energy futures at Mizuho.

U.S. President Donald Trump warned Iran on Tuesday not to follow through with threats to restart its nuclear program, as he and French President Emmanuel Macron struggled to find common ground on saving the 2015 Iran nuclear deal.

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"With rising production from U.S shale still a key market theme that continues to weigh on oil prices, it will be interesting to see how much oil appreciates before bears enter the scene", he said.

If the deal is declared over, then the United States likely would sanction oil that comes from Iran. Indeed, Trump has already mooted selling off half of the SPR to help plug the budget deficit, and the U.S.is already planning major sales from the SPR over the next few years to pay for maintenance to the facilities.

"If this current oil price level is sustained for at least the next six months, we can expect an even better outlook for O&G service providers as Petronas will make some upward revision to their current projects", he added.

Meeting were ongoing in Saudi Arabia while Trump was tweeting. "The concern for oil really comes at what happens if it hits?" The price of oil nosedived till it reached $26 per barrel.

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Iran's oil exports would drop as much as 500,000 bpd this year and 700,000 bpd in 2019 if the US revives sanctions, according to Fereidun Fesharaki, chairman of energy consultant FGE.

It's clear that the global oil markets have shifted significantly from two years ago, when prices fell below $30 per barrel.

Global oil prices hit their highest levels since late 2014 on Tuesday, pushed up by expectations of renewed USA sanctions against Iran and as Opec continues withholding supplies amid strong demand. However, higher oil prices have caused an immediate surge in mining investment, as more drilling rigs have been deployed, and those firms associated with oil production have seen revenue boom.

Last week, President Trump had accused OPEC of artificially inflating oil prices.

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Thomas Pugh is a commodities analyst for Capital Economics, an economic research consultancy based in London.

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