The reinstated U.S. blockade on Iranian oil exports is effectively preventing Tehran from exporting oil, making Iran’s oil volumes irrelevant for global oil market balances, Bob McNally, president of Rapidan Energy Group, told CNBC on Thursday.
The U.S. brought back the blockade in the Gulf of Oman aimed at preventing Iran from exporting its oil after the ‘deal to make a deal’ collapsed in July and hostilities in the Middle East returned.
The blockade, which the U.S. had lifted for about three weeks while negotiations were being held in June and early July, is now back and effectively blockading Iran’s oil exports.
“Kharg Island is not exporting anymore,” McNally told CNBC, referring to Iran’s key oil export terminal that handles more than 90% of all shipments.
“Iran has stopped being a factor for the oil market in terms of its exports because of the blockade,” McNally said.
Iran may have been removed from the real barrels count, but the crude oil futures market is underpricing geopolitical risk, the energy expert told CNBC.
“The refined products are telling the story” of how crude futures may be underpricing the tightness in the global oil market, according to McNally.
In addition, “the market has become a little less optimistic about near-term and sustainable reopening of Hormuz,” he said, adding that the longer the disruption goes on, “the risk is that crude will follow products higher.”
Brent Crude prices topped $91 per barrel this week amid heightened security concerns for shipping in the Middle East and fading hopes that the U.S. and Iran could return to negotiations.
The refined product market, however, is already flashing severe tightness, with the diesel crack spread hitting record highs in both the United States and Europe this week.
The diesel crack spread in the United States hit triple digits this week, for the first time ever. The premium over crude prices jumped to as high as $102 per barrel on Monday, before easing slightly to about $100 a barrel on Tuesday.
By Tsvetana Paraskova for Oilprice.com
