What is causing crude oil prices to cave in?
Oil prices are collapsing in ways no one saw coming when Brent crude was in the near $80 mark not too long ago, and WTI lagged about $10 behind.
Neither is the case today.
AxiTrader’s chief market strategist Greg McKenna, a specialist with over 25 years of experience, writes that the combination of chat that the US could tap its Strategic Petroleum Reserve (SPR), Treasury SecretarySteve Mnuchin suggesting exemptions on Iranian oil for a transition period, the reopening of Libyan oil ports, and the potential for increased Saudi and Russian production weighed on sentiment which in turn saw WTI and Brent fall more than 4% to $68.08 and $71.89 respectively.
Brent has gained about 7.5% in 2018, during which it poked above $80.00 a barrel in May to a 3-1/2-year high, according to Reuters.
“I’m targeting the mid $66 region at a minimum now for Brent,” he said.
Pressure lessens on Iran’s oil importers
Mnuchin said the US wants everyone to go to zero Iranian imports but that exemptions could be made for those who can’t get there by the deadline.
Mnuchin said, “We want people to reduce oil purchases to zero, but in certain cases, if people can’t do that overnight, we’ll consider exceptions”.
Reuters reported recently that Iran in total is exporting roughly 2.2 million barrels a day of sales, of which half is going to both China and India.
Iran is the world’s fifth-largest oil producer, and OPEC’s 3rd largest.
“The Trump administration has said more than 50 foreign companies have withdrawn their business from Iran since Trump announced the U.S. was withdrawing from the 2015 nuclear deal between Iran and the United States, Germany, France, Britain, China, and Russia,” reported Reuters.
Sanction pressures could make Iran Retaliate
Stratfor, a global intelligence site, said Iran possesses a number of cyber warfare assets that it can use to hit back at its rivals.
“Tehran likely will target assets in or associated with the US and the Gulf states, primary adversaries that are working against its regional interests,” it said.
“Iran has deployed its cyber capabilities in the recent past. Its major cyber attacks include the Shamoon 2012 strike on Saudi Arabia’s Aramco national oil company, the 2017 attack on a Saudi petrochemical company and a 2012 denial-of-service attack targeting 46 American banks,” said Stratfor.
“The Iranian Cyber Army gives Iran the option of deploying state-directed cyberwarfare.”
Rising oil production
Earlier last month, Trump had reportedly asked Saudi to raise oil production to ensure global oil supplies, and the kingdom announced that it has 2 million barrels per day of spare capacity that it can pump.
OPEC had agreed that non-OPEC member Russia and Saudi agreed with other oil-producing allies on June 23 to raise output from July.
Saudi had increased production by 500,000 barrels in June, Reuters reported, even before the pledge to raise output.
CNN Money reported that the oil price decline “has wiped out 9% from oil price in less than a week.”
Analysts blamed Monday’s sell-off on reports suggesting Saudi and the US are racing to prevent an oil shortage caused by Trump’s sanctions on Iran.
Late Friday, The Wall Street Journal reported that the Trump administration is considering teaming up with other Western countries to simultaneously release oil stockpiled for emergencies
Last week, oil prices plunged after Libya’s national oil company announced it had regained control of multiple ports, enabling it to resume exports, following weeks of disruptions.
Demand and Supply behind a new oil price rally
Forbes, in its June Statistical Review of World Energy, said that British oil and gas giant BP reported that consumption grew for the eighth straight year in 2017, climbing to 98.2 million barrels per day (bpd) for the first time ever.
“Chinese demand growth remains as robust as it’s been for the past decade. Consumption stood at 12.8 million bpd in 2017, a new record for the country. This figure is up 64% from only 7.8 million bpd in 2007,” said Forbes.
Oil Price.com, an industry site, reports that investment bank Morgan Stanley sees supply crunch and Brent oil at $85 on the back of diminishing oil supplies and an inability by Russia and OPEC to offset those market shortages.
“Goldman Sachs has long been bullish on oil, and even in the face of US sanctions on Iran, it maintains its price on oil in the low $80s.
A new threat has sprung in Southern Iraq, where 5 people have been killed since the beginning of protests in southern Iraq’s oil hub Basra earlier this month.
Reported by UPI as a “Battlefield”, Basra, home to Iraq’s biggest oil fields, with exports accounting for more than 95% of the country’s state revenue, could on its own create a supply crisis.
Iraq is the second-largest producer in OPEC behind Saudi and averaged 4.5 million barrels per day in June, up about 1.5 percent from May, according to OilPrice.com.