At Iran's Risk, Trump Is Winning Over Fastest Growing Oil Market

Dwayne Harmon
August 10, 2018

U.S. West Texas Intermediate (WTI) crude futures fell $2.70 to $66.47 a barrel, a 3.9 percent loss.

"We think India will continue to buy United States oil given the strength in USA production and the Indian market can emerge as a reliable buyer of U.S. oil", said Sri Paravaikkarasu, head of East of Suez Oil at consultancy FGE.

American crude shipments to China are around 400,000 barrels per day (bpd), worth $1 billion a month at current prices. China has proposed to impose retaliatory tariffs on $60 billion worth of US goods, including Liquefied Natural Gas (LNG), fueling speculation that it could also impose tariffs on oil.

The crude futures that China launched in March with ambitions to rival USA and European benchmarks seem to be dancing to an oil-market tune only they can hear.

China is rather looking to compensate for the decline in demand that Iran sees in its oil as other nations might halt imports amid U.S. threats.

As the U.S.re-instated its first set of sanctions against Iran yesterday, we could see further rhetoric from Iran about lost oil supplies and OPEC not being responsible for filling the supply gap, Peterson noted.

ANALYST'S TAKE: "Looking at the rhetorical battle between the United States and China recently, it may appear that finding a clue to resolve (the trade war) is impossible", said Lee Seunghoon, an analyst at Meritz Securities Co.in Seoul, South Korea.

EIA also reported on Wednesday that USA oil production declined to 10.9 million barrels per day during the week ending July 27, dropping from its record high level of 11 million barrels per day.

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U.S. West Texas Intermediate (WTI) crude futures fell to a almost seven-week low during the session and were last trading down $2.63, or 3.8 percent, at $66.54.

Oil price rose today amid reports that the US restored sanctions against Iran, the world's fifth-largest oil producer.

"A full embargo seems unlikely and the oil market should remain well balanced in light of rising production and the emerging markets' fuel inflation pains", Norbert Rucker, head of macro and commodity research at bank Julius Baer, said.

Anas Alhajji, an energy economist based in Dallas, Texas, told Xinhua that "Unlike the past, us weekly crude oil inventories have become extremely sensitive to U.S.net imports, making short term oil prices more volatile". "We are going to work with individual countries on a case-by-case basis, but our goal is to reduce the amount of revenue and hard currency going into Iran", said a senior USA administration official on Monday. Nationwide inventories in the USA probably fell 3 million barrels last week, according to a Bloomberg survey of analysts before government data due on Wednesday.

"We envisage that Iran views its threat to close the Strait of Hormuz, per se, as in fact more advantageous than its actual execution as closing the Strait has a regressive impact on Iran's interests as more than 80 per cent of Iran's oil exports pass through these narrow waters, and thus Iran will be cutting off its own economic lifeline", said Khoman.

"The US is pursuing a strategy to aggressively curb Iranian oil exports by November", UBS analysts led by Giovanni Staunovo wrote in a note. They said Iranian exports were likely to drop by up to 1-million bpd by November, but even that could push Brent to $85 a barrel if oil markets were hit by other disruptions in producer countries such as Libya or Venezuela.

For the past week, crude imports averaged 7.9 million barrels a day, up by 182,000 compared with the previous week.

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