WTI prices spiked a few hours ago following a report that US President Donald Trump wants waivers to countries that import Iranian oil to end.
US oil rose to $66.60 a barrel after a Washington Post article hit the wires on Monday. It pushed the prices of black gold to fresh 2019 highs.
Waivers to End on May 2nd
According to the report, Secretary of State Mike Pompeo will announce today, Monday that:
“As of May 2, the State Department will no longer grant sanctions waivers to any country that is currently importing Iranian crude or condensate,”
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On November 2018, the US reimposed sanctions on Iranian exports but granted waivers to China, India, Japan, South Korea, and Turkey (Iran’s main clients).
With the exemptions kicking in in May, demand for crude oil is likely to increase.
Shale Slowdown Likely to Aggravate Crude Prices
Meanwhile, shale drilling activity saw a decline with weakness most noticeable in North American land and in the “Northern Hemisphere”. Even the current production outlook appears discouraging and the growth outlook could be soon adjusted to the downside. Nevertheless, production is still on a rise, albeit at a slower pace.
The EIA reported that shale oil supply was revised down. This is despite the expectations for a few new pipelines to come online as light sweet oil continues to fill those in Texas.
Market Still Vulnerable to Supply Disruptions
Despite oil prices rallying over 30% YTD, they could now extend higher over the next few weeks. This is thanks to a combination of geopolitical events including waivers and OPEC/Non-OPEC and Russian-led production cuts. There is also, of course, the falling production from Venezuela, Iran, and Libya. All this makes for a high probability of seeing oil bid.
Tensions around Libya haven’t caused any major disruptions just yet. However, it is only a matter of time before Eastern Libyan forces seize Tripoli. Once this happens, supply-side issues will surely escalate.
Saudi Arabia to Offset Losses
The US and Saudi Arabia are negotiating to offset the supply to keep prices around current levels. However, risks around the kingdom’s negotiating power have increased. Saudi Arabia, 14 OPEC members, and 10 Non-OPEC members have committed to agreed production levels up until June. And it seems possible that an agreement with the US will hamper the KSA’s leverage in Vienna. And that leaves them in a difficult position for now…
Are Bears Waiting At $66.67?
WTI prices will most likely depend on Saudi Arabia’s decision to offset the already tight supply in the medium-term. In the short-term, and since the announcement, oil is looking bid. With the breakout above $64.90 looking strong, prices could be attracted by the $66.67 zone (Jan 2018 high). There, bears could start increasing the sell bets for a correction down to $63, or even below the $60 barrier.