Oil surplus vanishes amid Iran sanctions

As world governments face the U.S.-imposed November deadline for ceasing all imports of Iranian oil, oil markets are using up whatever oil surpluses are on hand, according to traders, who foresee significant price hikes later this year.
By Rick Docksai | Sep 07, 2018
Unsold oil is vanishing fast in world markets, according to oil traders, who said that the looming deadline for countries to comply with restored sanctions on Iran is the driving factor. The traders see more oil price increases ahead as inevitable, with forecasts for oil prices reaching $80 a barrel or more in some sectors.

"The overall situation ... is that U.S. sanctions toward Iran are now increasingly kicking in, which will help to dry up the physical crude oil market and place it back into solid backwardation," said Bjarne Schieldrop, chief commodities analyst for Norwegian-based bank SEB.

Schieldrop projects that Brent, a popular crude oil that experts consider to be a benchmark for tracking oil prices worldwide, reaching $80 a barrel or more. Brent was only $48 per barrel in July of last year but climbed steadily from August through the present and is now at approximately $74.

The Trump administration re-imposed sanctions on Iran shortly after discarding the 2015 Iranian nuclear accord in May. The sanctions are currently in effect and include a prohibition on Iranian oil, but the U.S. government has given countries that import oil from Iran until November to find replacement sources.

Those countries are now running through any surplus oil they have on hand while they scramble to replace the oil that they can no longer obtain from Iran. Traders reported rapid drawdowns of millions of unsold barrels' worth of oil supplies in northwest Europe, the Mediterranean, and Africa over July and August. The west African market had a months-long surplus that had brought prices down to their lowest levels in months, but this surplus is now almost gone, they said.

The shortages may be a boon for Angola, however. Demand for Angolan oil, a favorite among Chinese oil refiners, is projected to rise going into October.

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