Geopolitics vs. Price.. Ding Ding Ding!

By: Greg Gill / May 4, 2018

As WTI crude climbs towards $70 a barrel, many are wondering if prices will continue their ascent.

As mentioned by my colleague Sam in yesterday’s blog, it seems certain that President Trump’s upcoming decision on the Iran nuclear deal will likely have an impact on oil prices in some way. Questions that still remain; how will the decision affect oil prices and will geopolitical events be enough to keep the price of oil near 4 yr highs?

Some folks believe that prices will continue to rise if Iran gets slapped with sanctions once again. Ehsan Khoman, head research strategist at MUFG, happens to be one of them. Ehsan says that 350,000 barrels of Iranian crude could be disrupted every day if the current Iran nuclear deal falls through.

Khoman foresees WTI Crude climbing to $75 per barrel and Brent crude to $80 per barrel in the near future if President Trump votes yes to bringing back sanctions. Ehsan feels that the market has not fully “priced-in” the potential risk of losing the petroleum exports that Iran brings to the table.

Conversely, there are those who believe prices remain at higher levels due to factors that will not last in the long-term. There seems to be a lot of supporting evidence for the market moving higher in the short-term (if Iranian supply is disrupted), but there are those who feel that the market is due for a correction.

According to BP’s CFO Brian Gilvary, the recent climb in crude prices are merely a result of elevated global demand, a stronger than usual alliance of OPEC members and more recently, because of geopolitical turmoil. He says, “sometimes people forget it wasn’t long ago we were down at $28 a barrel, I think oil prices today feel a bit frothy.”  

Gilvary also reminds us that U.S. production is at record-high levels right now, which could eventually lead to a surplus of product yet again. If supply surpasses demand at a high enough level, this in theory could help push oil prices down to lower levels again. Gilvary believes that crude oil prices are due for a correction that will take Brent crude down near $48 per barrel. He did not offer an exact timeline for how long it might take for oil to decline to that level, however he was adamant that US Shale production would be the driving force.

As of 11:30 AM this morning, both gas and diesel are up approximately 2 cents, while WTI crude is at $69 per barrel.

 

https://www.cnbc.com/2018/04/26/iran-deal-up-to-350000-barrels-of-crude-oil-a-day-could-be-at-risk.html

https://www.cnbc.com/2018/05/01/bp-cfo-oil-prices-are-looking-frothy-and-could-lead-to-a-correction.html

https://www.cnbc.com/2018/01/31/us-oil-production-tops-10-million-barrels-a-day-for-first-time-since-1970.html

http://blog.guttmanenergy.com/what-is-the-iran-nuclear-deal-deal-or-no-deal?utm_campaign=Blog%20Subscriptions&utm_source=hs_email&utm_medium=email&utm_content=62660148&_hsenc=p2ANqtz-8mnW3veQumhfVuxQJjmd9N9-v3m7t3NauLJXSFtCRrF9QKUBh2FIm33_IW2HvJQJDRPvlePl1YWpiVyXdEH2MdSrHkCg&_hsmi=62660148

 

 

 

 


Categories: Iran


Greg Gill

Written by

Greg Gill

I’m passionate about fully understanding my customers’ fuel operations and the fuel markets in which they operate. I want them to view me as their fuel expert. To develop strong, trusting partnerships with customers, I have to provide them with meaningful and timely information to ease the challenges of making smart fuel decisions, allowing them to focus on their core business.


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