US oil prices went above $65 per barrel on Monday for the first time since October last year after the White House pledged to deepen its crackdown on Iran.
The Trump administration said they will bring Iran’s oil exports to “zero” by removing the waivers that previously allowed certain countries to buy crude oil from the OPEC nation.
This latest escalation adds to growing supply concerns in the oil market. Venezuela’s oil shipments have been stopped by US sanctions. Violence in Libya. And Saudi Arabia has also slashed its output.”The market will be under pressure and the prices will definitely react upward,” said Iman Nasseri, managing director for the Middle East at consulting firm Facts Global Energy.
President Trump promised in a tweet that “Saudi Arabia and others in OPEC will more than make up” the difference.
The oil market, however, remains skeptical of the assertions.
Oil is up 54% since December
US oil prices climbed around 3% on Monday to $65.90 per barrel. That’s a spike of nearly 55% since prices closed at $42.53 for a barrel in December. Brent crude, the global benchmark, surged 3.4% on Monday and touched $74 for the first time since early November.
Gasoline prices, however, continued to climb. The national average hit $2.84 a gallon on Monday, up from $2.61 a month ago, according to AAA.
“It’s a bit of a conundrum,” said Matt Smith, director of commodity research at ClipperData, an energy research firm. “We know President Trump wants to keep gasoline prices in check. But crude prices are gaining and that will only drag that retail gasoline price higher.”
The end of the OPEC deal?
If Saudi Arabia wanted to help, it would have to reverse some of its own recent moves. Facing a severe collapse in oil prices, OPEC and its allies agreed in December to cut down on production. Saudi Arabia, OPEC’s de facto leader, delivered the brunt of the output cuts.
Nasseri, the analyst from Facts Global Energy, said that Saudi Arabia and the UAE could potentially replace up to 1 million barrels per day lost because of the crackdown on Iran.
However, such a move would eat into the ability of Saudi Arabia and the UAE to respond to future supply shocks.
US imports from Venezuela have been reduced to zero because of the sanctions Trump imposed earlier this year on PDVSA, the Latin American nation’s state-owned oil company. OPEC and its allies will need to decide next steps when they meet in Vienna in June.”They will have a very tough OPEC meeting,” Nasseri said. “That may be the end of the OPEC-plus agreement in its current format.”