Global Oil Market - May 22

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Tuesday May 22, 2018

Oil prices rose on Monday after the U.S. announced a bellicose list of demands on Iran, leaving little chance of a new accord. Oil prices were up “specifically because of Pompeo’s speech,” Thomas Pugh, commodities economist at Capital Economics, told the Wall street Journal. “It certainly looks like the U.S. is going to go as hard as possible on sanctions and try their best to make it hurt.”

U.S. issues harsh demands on Iran. On Monday, Secretary of State Mike Pompeo issued a long list of extreme demands on Iran as prerequisites for a new deal, without offering any concessions or carrots. The demands include stopping all uranium enrichment activity and also stopping all support for militants in the Middle East. Unsurprisingly, Iran immediately rejected the demands. Pompeo’s speech was clearly not designed to reach an understanding between the two countries, and it puts the U.S. and Iran on track for more confrontation. America’s top diplomat also signaled that there would be little leeway granted to European companies seeking to do business with Iran.

Iran wants euro purchases of oil. Iran is leaning on the EU to make euro-denominated purchases of Iranian oil as a way to avoid U.S. sanctions. Iran says Europe’s effort to rescue the nuclear deal is so far insufficient.

Maduro prevails in election, U.S. responds with financial sanctions. Venezuelan President Nicolas Maduro prevailed in a rigged election on Sunday, after blacklisting some opposition candidates and intimidating voters. On Monday, the Trump administration barred the purchase and sale of Venezuelan government debt, including new debt issued by PDVSA and the central bank. The U.S. held off on sanctions on oil sales for now, but a State Department official said those measures were “under active review.” Venezuela might avoid being hit by those harsher measures because oil prices have climbed to three-year highs. “I really don't think they will ban imports in this price environment,” David Goldwyn, president of Goldwyn Global Strategies and a former special envoy for international energy affairs under the Obama administration, told S&P Global Platts.

OPEC watches Venezuela output. OPEC is reportedly watching Venezuela’s plunging oil production, which could force the group to tweak its output limits at the upcoming meeting in Vienna. “Maybe, if the market is tight, there will be a need to make some adjustment,” one OPEC delegate told Reuters.