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Oil prices moderate after initial Iranian response

12 May 2018, 11:26 | Franklin Nunez

Oil prices moderate after initial Iranian response

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The reapplication of US sanctions - particularly if effective - likely marks the practical end of the supply cut agreement as OPEC operates through unanimous decision-making, and Saudi and Iranian oil market interests will grow increasingly divergent.

Theresa May, alongside German Chancellor Angela Merkel and French President Emmanuel Macron had pleaded with Mr Trump not to tear up the progress made with Iran.

Iran, which pumps about 4 per cent of the world's oil, exports about 450,000 barrels per day to Europe and around 1.8 million bpd to Asia.

As part of the supply deal, OPEC pledged to cut 1.2 million bpd from supplies from its members.

A year ago, the national average for was $2.34 for a gallon of gas, according to a CNN Money report.

Zanganeh said Iran's crude production was about four million barrels per day (bpd), nearly four percent of global output. Japan may follow suit.

One factor that could partially mitigate any shortfall from Iran is soaring US oil output.

Niels Christensen: That's a big question, it's very uncertain how big the impact will be on Iran oil exports.

After the U.S. walked out of the Iran deal, the U.S. will be targeting Iran's crude oil sales, and sanctions previously lifted under the deal will be re-imposed following a 180-day wind-down period, the U.S. Treasury said.

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Volumes jumped for all key crude oil futures contracts as investors took new positions and refiners hedged to protect themselves from higher feedstock prices.

China's response to the US sanctions is unclear.

Snapping sanctions back on Iran will have an immediate impact on less than 200,000 barrels per day of Iranian oil, according to analysts surveyed by S&P Global Platts.

"Although Iran produced only 5% of the annual oil output in 2017, a conflict in the Middle East could disrupt supply from Saudi Arabia, the UAE, Kuwait, Iraq and Qatar, which together made up 26% of world supply", Nomura said. The effects may be muted as major Asian importers, China chief among them, are likely to continue buying Iranian oil.

USA pressure to decrease Iranian oil purchases puts South Korea in an especially tricky position while it is trying to convey to North Korea that it is serious about committing to a denuclearization deal.

At the same time, the analysts said the global economy is growing at a healthy pace and supporting higher demand for oil. The Iranian year ends on March 20.

The threat of new sanctions come amid an oil market that has already been tightening due to strong demand, especially in Asia, and as top exporter Saudi Arabia and top producer Russian Federation have led efforts since 2017 to withhold oil supplies to prop up prices. Hours before Trump's announcement, federal government forecasters raised their estimate for 2018 oil prices by 10.5% to an average of $65.58 a barrel.

Although Donald Trump's decision to withdraw from the Joint Comprehensive Plan of Action was not a surprise, reinstating all U.S. nuclear-related sanctions was more than expected, said Barclays analysts in a research note.



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