A worldwide oil surplus is permitting the United States to accelerate its plan of bringing Iranian crude exports to a standstill, and markets are watching on in awe as the commodity battle plays out.
U.S. sanctions on Iran and Venezuela, two of the largest oil producers in the Organization of Petroleum Exporting Countries (OPEC), and production cuts by the cartel and Russia have increased global oil price to near four-month highs and have made heavy crude more pricey for refiners.
Iran reeling from sanctions
Iran has lost $10 billion in income because of U.S. sanctions in November, with about 1.5 million barrels each day (bpd) of Iranian crude being cut from international markets, a U.S. State Department official said on Wednesday.
Brian Hook, the State Department’s special representative on Iran, said in remarks at the CERAWeek energy conference that due to a global oil surplus – in part due to growing U.S. production – the United States is accelerating its plan of bringing Iranian crude exports to zero.
Iran reached an arrangement with world powers in 2015 over its nuclear program which caused the lifting of sanctions in 2016 however U.S. President Donald Trump pulled the plug in May last year and reimposed restrictions in November.
The worldwide oil market is searching for indications that Washington may extend sanctions waivers for Iran’s key consumers in early May. The United States amazed the marketplace in November by enabling eight nations to keep importing Iranian oil – in part causing Brent futures, the international benchmark, to fall to near $50 a barrel in late December after surpassing $86 a barrel in October.
Venezuela isn’t faring much better
Venezuelan oil production has been falling dramatically on its own to the point where it was anticipated to be well less than 1 million barrels a day this year. The sanctions on Caracas have not triggered any huge market shocks.
Elliott Abrams, the State Department Unique Agent for Venezuela, stated the sanctions on Venezuela are meant to be short-term and force the government to alter behavior. The U.S. actions are seen as a message focused on the military leadership, which up until now continues to support Venezuela President Nicolas Maduro.
U.S. officials have recognized Juan Guaido, president of the National Assembly, who began calling himself Venezuela’s president six weeks ago.
Since then, Venezuela has faced a variety of challenges, including a massive blackout which Maduro claims the U.S. caused.
Daniel Yergin, IHS Markit vice chairman, stated Venezuela’s oil operations had been deteriorating a lot under Maduro that they had already become much less critical to world supply, even though Venezuela has the world’s biggest oil reserves. “The Maduro regime has been committing oil suicide,” he declared.
Venezuela continues to export oil to China and Russia, however, as those barrels are essential to settle debts.
Brazil and Iraq step up
Brazil and Iraq are also expected to put more heavy crude barrels onto the market, and Canada could release more shipments of Alberta crude to the U.S. if prices stay high enough to make it financially feasible.
IHS Markit senior vice president Carlos Pascual explained, “The serious question that everyone is looking at is the availability of heavy crude oil as a further round of sanctions on Iran plays out.”