Geopolitical factors once again trumped fundamentals with the growing concern over new U.S. sanctions on Iran, keeping WTI and Brent crude prices high despite a build in crude oil inventories reported yesterday by the Energy Information Administration.
The EIA yesterday reported that U.S. drillers had produced an average 10.586 million barrels daily in the week to April 20, a record-breaking production rate. The authority added that in the same week crude oil inventories had increased by 2.2 million barrels, which went counter to analyst expectations of a draw or a much smaller build.
Such figures would usually weigh on prices, but the market appears to be much more focused on the possibility of new sanctions against Iran. A slight suggestion that President Trump might accept a revised deal between the six Western powers who signed the original nuclear deal with Iran on Tuesday did halt the price rise, but it was temporary.
Now, French President Emmanuel Macron has proposed a new deal to offer Trump, but if the U.S. president shuns it, it will be time of more tension and uncertainly, Macron said, as quoted by Bloomberg. Trump is due to announce his decision on whether he will extend the sanction waivers for Iran on May 12.
Some analysts, meanwhile, believe that the market is underestimating the effect of new sanctions on oil prices. MUFG’s head of research, Ehsan Khoman today told CNBC that “We think at least 250,000 to 350,000 barrels of Iranian crude (a day) could be at risk of disruption if sanctions are brought back into place. In terms of the upside risk to oil prices, we think that anything north of $80 for Brent crude and WTI above $75 could firmly take place. We think markets have not fully priced-in the size and magnitude of Iranian sanctions."
By Irina Slav for Oilprice.com
