WTI opened at $65.75/bbl this morning, $0.20/bbl higher than where it closed yesterday. Traders are still trying to figure out the impact of Trump's decision to end all waivers given to 8 countries six months ago, allowing them to continue to import oil from Iran. My guess is that China will be the lone country that tests Trump. - Dan
LONDON (Reuters) - Oil prices hit their highest since November on Tuesday after Washington announced all waivers on imports of sanctions-hit Iranian oil would end next week, pressuring importers to stop buying from Tehran.
Brent crude futures rose as high as $74.70, a level not seen since Nov. 1, before paring gains as the market gained confidence that global supply would remain robust.
By 1255 GMT Brent futures were at $74.12, up 8 cents, or 0.11 percent, from Thursday's close.
U.S. West Texas Intermediate crude futures were at $65.69 per barrel, up 14 cents or 0.21 percent, having earlier hit their highest since October at $66.19.
Despite Washington's announcement, spare capacity from other suppliers such as Saudi Arabia and possible continued imports of Iranian crude by China could balance the market.
"Most people expect that China will continue to import Iranian oil and might even increase imports. They have to make a stand here," SEB commodities strategist Bjarne Schieldrop said.
"Saudi Arabia will be capable of chipping in too to add to global supply," he added.
The United States on Monday demanded that buyers of Iranian oil stop purchases by May 1 or face sanctions, ending six months of waivers which allowed Iran's eight biggest buyers, most of them in Asia, to continue importing limited volumes.
Before the reimposition of sanctions last year, Iran was the fourth-largest producer among the Organization of the Petroleum Exporting Countries at around 3 million barrels per day (bpd), but April exports have shrunk to below 1 million bpd, according to tanker data and industry sources.
China, Iran's largest customer with imports of about 585,400 bpd of crude oil last year, formally complained to Washington over the move, which a Chinese foreign ministry spokesman said "will contribute to volatility in the Middle East and in the international energy market".
U.S. President Donald Trump is confident that Saudi Arabia and the United Arab Emirates will fulfill their pledges to make up the difference in oil markets, a U.S. official told reporters.
Saudi Energy Minister Khalid al-Falih said on Monday that his country would "coordinate with fellow oil producers to ensure adequate supplies are available to consumers while ensuring the global oil market does not go out of balance".
Saudi Arabia is the world's top oil exporter and de facto leader of OPEC, which has led global supply cuts since the start of the year aimed at propping up crude prices.
The group is set to meet in June to discuss output policy.
Barclays bank said in a note that the U.S. decision took many market participants by surprise and would "lead to a significant tightening of oil markets".
The move to increase pressure on Iran came amid other sanctions Washington has placed on Venezuela's oil exports and as combat threatens to disrupt Libya's exports
Oil Price - April 23
Oil Price - April 23
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil Price - April 23
TPH note on 4-23-2019
Iranian Sanctions Not Ideal for Refiners
Eliminating waivers likely to narrow sour difs and weigh on gasoline demand
The Trump Administration surprised the market yesterday by declining to grant waiver extensions to Iran's largest trading partners, which sent Brent up nearly +3%. Refiner equities rose +2.6% on average (vs +0.1% for S&P), but in our view this was largely due to short-term index buying, as the medium-term impact is negative for the group for two reasons. One, taking 1.5mmbpd of sour Iranian barrels off the market is likely to compress sour crude differentials, which have been widening out in recent weeks. Over the past five days, Mars, Arab Medium, and Kuwait barrels had priced at discounts to Brent of $2.76, $1.74, and $2.14/bbl, respectively, which is definitely narrower than year-ago levels but wider than Mar'19 averages of $1.56, $0.60, and $1.11/bbl. And two, higher crude prices will flow through to higher gasoline prices, potentially inhibiting demand during the key summer driving season. DOE data shows estimated US gasoline demand -0.2% y/y over the past four weeks, and US retail gasoline prices were already +9c/gal higher y/y before this announcement. A final thought - Brent is already +9% QTD, which could weigh on refining margin capture in Q2'19.
Iranian Sanctions Not Ideal for Refiners
Eliminating waivers likely to narrow sour difs and weigh on gasoline demand
The Trump Administration surprised the market yesterday by declining to grant waiver extensions to Iran's largest trading partners, which sent Brent up nearly +3%. Refiner equities rose +2.6% on average (vs +0.1% for S&P), but in our view this was largely due to short-term index buying, as the medium-term impact is negative for the group for two reasons. One, taking 1.5mmbpd of sour Iranian barrels off the market is likely to compress sour crude differentials, which have been widening out in recent weeks. Over the past five days, Mars, Arab Medium, and Kuwait barrels had priced at discounts to Brent of $2.76, $1.74, and $2.14/bbl, respectively, which is definitely narrower than year-ago levels but wider than Mar'19 averages of $1.56, $0.60, and $1.11/bbl. And two, higher crude prices will flow through to higher gasoline prices, potentially inhibiting demand during the key summer driving season. DOE data shows estimated US gasoline demand -0.2% y/y over the past four weeks, and US retail gasoline prices were already +9c/gal higher y/y before this announcement. A final thought - Brent is already +9% QTD, which could weigh on refining margin capture in Q2'19.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group