Oil near multi-year highs on Iran sanctions

While investors are still evaluating the full impact of the USA withdrawal from the nuclear accord, UBS Group AG said the sanctions could cut Iran’s oil exports by as much as 500,000 barrels a day in the next six months.

Some Asian governments, including South Korea, India and China, are also hoping they can avoid the brunt of the sanctions by acquiring waivers – which the U.S. government has said it will only consider granting if a country shows a good faith effort to cut Iranian purchases.

Another explanation is that the impact of rising oil prices on the USA economy has changed in recent years. Other powerful drivers are likely to jerk oil prices around, including the resurgent USA dollar and a surge in production from Texas shale fields.

US government bond yields fell across maturities as demand for safe-haven assets increased after Trump’s Iran announcement.

Oil extended its three-year high as tensions in the Middle East flared following the USA decision to renew sanctions on Iran, OPEC’s third-largest producer.

Several Asian refiners told Reuters that they were already on the lookout for alternatives to Iranian crude oil deliveries.

“If a supply dislocation emerges and inventories get abnormally low, then OPEC and Russian Federation may act”, said Yasser El Guindi, market strategist at Energy Aspects.

The open question is “how sharp will the teeth of the sanctions be?” said Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida.

While the existence of an understanding seems fairly well confirmed, its content remains a mystery. The XLE dropped 4% in 2017, severely underperforming the SP 500 index, which gained 19% a year ago. The bank cited geopolitical risks in Saudi Arabia and Venezuela at a time when inventories are falling. This would essentially end the OPEC-led deal to trim production. Bullish traders for oil and products are feeling stressed over whether it is time to take profits.

That matters for commodities markets as there is little spare oil capacity in the global economy.

Under the sanctions, firms have a 90- to 180- day wind-down period to cut ties with Iran.

But it is also possible that they have reached nothing more than a vague high-level political consensus or “gentleman’s agreement” and plan to improvise. U.S. West Texas Intermediate (WTI) crude futures rose $2.08 to settle at $71.14 a barrel, a 3-percent gain.

Higher gas prices are on track to cost Americans an extra $38 billion in 2018, wiping out about one-third of the direct benefit from the tax law, according to Morgan Stanley.

Bank of America expects that oil prices could rise to $100 per barrel in 2019, Bloomberg reported.

USA drillers added 10 oil rigs this week, the sixth consecutively weekly addition, bringing the total rig count to 844, the highest level since March 2015, General Electric Co’s Baker Hughes energy services firm said. But there is a lot of uncertainty about how much is “too much”.

It may do so by undermining the interests of Washington and its allies in the Middle East including by increasing support for Yemen’s Houthi armed movement, possibly provoking a military response from Saudi Arabia and the United Arab Emirates.

US light crude was up $1.70 a barrel, or nearly 2.5 percent, at $70.76, near highs also last seen in late 2014.In China, the biggest single buyer of Iranian oil, Shanghai crude futures hit their strongest in dollar terms since they were launched.

Oil prices rise to $70 per barrel for the first time since 2014