US Quits Iran Deal, Expect Saudis to Boost Crude Oil Output

United States bank Goldman Sachs said renewed sanctions and risks to supplies elsewhere, especially in Venezuela, meant there was a strong possibility of higher prices than the bank's summer Brent forecast of $82.50 per barrel. Now Iran, the world's fifth-largest oil producer, will have to decide whether to follow the US and withdraw or try to salvage what's left with the European countries. This move by the Trump administration is likely to shuffle, rather than strangle, Iranian oil exports, and the United States will be none the better for where that oil ends up. "But in the long run, it might discourage European Union companies from investing in the Iranian oil industry and hamper the country's production ability in the future", he tells Barron's.

The broader outlook for Iranian oil production and exports is on the downside, particular as fresh U.S. sanctions have yet to be imposed on the region.

It's been a volatile session for crude oil as it's continuously trading bullish, near 3/2-year highs after President Donald Trump pulled the US out of an global nuclear deal with Iran. Those that rely heavily on imported oil (e.g., India and China) will be pressured, while emerging market oil-producing nations such as Saudi Arabia, Nigeria, and Colombia could be winners.

Gasoline futures added 2.7 percent to settle at $2.1673 a gallon on Wednesday. The US crude oil reached another record last week, climbing to 10.7 million barrels per day.

To many of president Trumps critics, including some in both parties and the European leaders who spent the past several months trying to address his concerns, there is no Plan B, it said.

"Judging by the initial reaction of the market, the damage is potentially great" though the the impact of the sanctions is still being assessed, said Tamas Varga, an analyst at PVM Oil Associates London.

Israel claimed that its defenses in the Golan Heights, a Syrian territory it annexed without worldwide recognition, then intercepted a number of missiles fired by Iran's Revolutionary Guard. But they warned there was a risk that deteriorating conditions in Iran would push prices to $100, a level not seen since 2014.

The third source pointed out that it was too soon to tell if extra oil was needed and that Iran had kept much of its exports flowing under a previous round of sanctions.

China's Xinhua news agency also reported on May 9 that China's special envoy for the Middle East, Gong Xiaosheng, said after meeting with Iranian officials that the multilateral deal was "very serious and important".

The dollar fell from its strongest levels in 2018 against a basket of currencies due to mild profit-taking, but the greenback was expected to resume its rise due to solid US economic growth and further monetary tightening by the Fed. It lost $1.32, or 1.7 percent, to close at $74.85 per barrel on Tuesday.

The weaker dollar stemmed from a bounce in the euro, which hit a fresh low for the year in early trading before paring gains. Analysts expect oil exports to remain higher than they were before 2016, so the economy may muddle through, but banks' problems mean a financial crisis is not impossible.

"Oil prices will certainly move up", Fereidun Fesharaki, chairman of energy consulting firm FGE, wrote to clients on Wednesday.

  • Leroy Wright