Oil holds gains as Mideast clashes raise risks after Saudi cuts

Virginia Carson
May 15, 2018

While Trump's latest sanctions on Iran have pushed up crude oil prices, OPEC members including Saudi Arabia have promised to fill the void.

Oil prices held firm on Tuesday as ongoing production cuts by the Opec cartel and looming USA sanctions against Iran tightened the market.

Of course, not everyone is as cool headed as Pradhan or Mazroui: Claudio Descalzi, CEO of Italian oil and gas giant ENI, told CNBC that "The impact is more for the crude oil price, because Iran now is exporting about 2.6 million barrels [per day], and if we go back to the first sanctions, they were exporting 1.5 million".

US President Donald Trump directed his Secretaries of State, Energy, and the Treasury to significantly reduce the amount of petroleum and petroleum products bought from Iran, according to a memorandum released by the White House on Monday. While those nations have vowed to stand by the agreement, there is little likeliness that USA allies would side with Iran in this issue.

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Oil held near $71 a barrel on heightened political risks in the Middle East following unrest in Gaza and the return of sanctions against Iran.

Brent crude oil reached an intraday peak of $79.47 a barrel, up $1.24 and its highest since November 2014, before retreating to $78.14, down 9 cents by 10:09 EDT.

"The initiation of further sanctions on Russian Federation and the withdrawal from the Iran nuclear deal are additional elements that may be a source of uncertainty in the future, impacting the USA economy and global trade", the report read.

The report is the last one before the oil ministers' meeting in Vienna to discuss the oil production ceiling two weeks later.

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Iran's oil buyers continue to buy its crude, assessing the implications of the sanctions during the 180-day wind-down period.

Since late 2017, longer-dated USA oil futures contracts are trading at prices lower than nearer-term contracts, a configuration known as backwardation, indicating that the market at least currently doesn't believe prices will continue to be as high as they are now, longer term.

"So far the impact on the global economy has been minor and negligible, but the build-up of potentially disruptive concerns has increased", OPEC noted in its monthly oil market report.

China is crucial to global oil demand growth, and if it keeps its current growth pace, it would support the strong demand growth that analysts expect.

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Iran now provides approximately 4 percent of global crude supplies and is the third-biggest manufacturer in the OPEC. On the supply side are expectations that as prices continue to rise so will production, including US oil and shale production.

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