US Foreign Oil Addiction Is Shrinking to Eisenhower-Era Level

Crude oil fell on Thursday, giving up earlier gains as investors took profit on a rally triggered by potential disruption to oil flows from major exporter Iran in the face of USA sanctions.

"The sanctions were in place for so many years".

Local refiners say cutting off Iranian oil imports will have a limited impact in the short term, but increased volatility in the market could create uncertainties for businesses. This is contrary to the global reflation trade that so many have been betting on over the past year and perhaps a warning sign on the sustainability of higher oil prices.

OPEC and Russian Federation are set to maintain their production cuts through the end of 2018, and Saudi Arabia wants to keep prices high to attract investors for its upcoming Aramco IPO. Crude is India's largest import item, meeting 82% of the country's needs.

Carl Bildt, the former prime minister of Sweden who is now co-chair of the European Council on Foreign Relations, complained that new sanctions "are hardly hitting any USA companies, but aim primarily at European ones". Meanwhile, Venezuela, another big oil country, is in an economic depression. The 2015 agreement required Iran to curb its nuclear enrichment program in exchange for relief from worldwide sanctions.

Then there are concerns of heightened geopolitical tensions in the Middle East from the unilateral USA withdrawal. "It's overwhelming nearly all the other sectors in terms of its impact on today's market action", said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

Companies and countries with commercial deals with Iran would have either 90 or 180 days to wind down those activities, depending on the sector and type of products sanctioned. "More shoes could drop".

USA officials said certain waivers can be negotiated, but they did not say what goods or countries might qualify.

There was little reaction to talks between Japanese Prime Minister Shinzo Abe, South Korean President Moon Jae-in and Chinese Premier Li Keqiang in Tokyo on North Korea and economic relations.

For several months, US and Canadian shale oil have offset supplies from other nations.

VIDEO: Saudi Aramco CEO says to get ready for IPO in H2 2018, not 2019! It was about $50 a year ago.

Trump's decision could eventually mean less oil on the world market from Iran because now the US will reimpose economic sanctions on Iran that were lifted as part of the 2015 deal. But rising pump prices have pinched consumer spending, and some analysts argue that the Iranian sanctions could spoil much of the expected gains from the Republican tax cuts.

While originally valued at $2trn, Aramco' price valuation suffered as oil prices dropped, with many experts putting it more in the range of $1trn-$1.5trn, at best. Even before Trump's announcement gasoline prices were almost 50 cents a gallon higher than a year ago. The analysts conceded, however, that high utilization at USA refineries leading into the summer driving season would offer a price "upside" over the coming months.

With WTI hovering around $71 ahead of today's DOE data (ramping off yesterday's Iran decision) and popped above it as the dat hit...

Trump telegraphed the move, and oil prices shot up in recent weeks as traders anticipated it. In times of geopolitical tensions, investors take position in futures to jack up prices artificially. Analysts expect that will be reflected in commodities and financial markets.

"It's quite possible that surging U.S. shale production could easily fill the gap left by Iran", Eberhart said. "It's going to be a roller coaster in coming months".

  • Zachary Reyes