As traders adjusted to the prospects of renewed US sanctions against Iran oil prices clocked up more multi-year highs
The US plans to impose new sanctions against Iran, which produces around four per cent of global oil supplies, after pulling out of agreement reached in late 2015 which limited Tehran’s nuclear ambitions in exchange for removing US-Europe sanctions, reported Reuters.
The announcement saw a sharp hike in oil prices, with Brent crude and US West Texas Intermediate (WTI) crude both hit their highest since 2014, reaching $77.76 and $71.67 per barrel respectively.
China, Iran’s single biggest buyer saw Shanghai crude futures post their biggest intra-day rally since their launch in March, rising more than four per cent to a dollar-denominated record of around $73.40 per barrel.
Analysts had little hope that opposition to the US action would prevent sanctions from going ahead.
“We believe the previous one million bpd limit for exports imposed during previous sanctions will be reimposed. As before, it may take several rounds of reductions to reach target levels,” energy consultancy FGE’s Founder and Chairman Fereidun Fesharaki wrote in a note, adding that condensate, a super-light form of crude oil that was excluded in the last round of sanctions, may well be included, said Reuters.
The sanctions come in a tightening oil market as a result of strong demand, especially in Asia, and as top exporter Saudi Arabia and top producer Russia have led efforts since 2017 to withhold oil supplies to prop up prices.
Reporting data from the Energy Information Administration (EIA), Reuters said that US crude inventories fell by 2.2 million barrels in the week to 4 May to 433.76 million barrels, slightly above the 420 million barrels five-year average level. One factor that could prevent markets from tightening further is soaring US oil output.
Weekly US crude oil production hit another record last week, climbing to 10.7 million barrels per day, up 27 percent since mid-2016, meaning US output is catching up to Russia, which pumps around 11 million bpd.