Brent Crude Oil Tops $80 A Barrel

Brent crude oil tops $80 a barrel as market grows more concerned about Iran sanctions

Brent crude oil on Thursday topped $80 a barrel for the first time since November 2014, as the market grew concerned that the Trump administration’s effort to sanction Iran’s crude exports could be more successful than originally thought.

Oil prices hit $80 a barrel for the first time since November 2014

Brent, the international benchmark for oil prices, hit a session high of $80.33 a barrel on Thursday, its strongest level since Nov. 24, 2018. The contract was up 91 cents at $80.19 by 11:17 a.m. ET (1317 GMT).

U.S. West Texas Intermediate crude rose 40 cents to $71.89 a barrel. WTI earlier hit a high going back to Nov. 28, 2014 at $72.30 a barrel.

President Donald Trump announced last week he would withdraw the United States from the Iran nuclear deal and restore wide-ranging sanctions on Iran. His administration is gave companies 90 to 180 days to wind down current business with Iran subject to sanctions.

Prices rose on concerns that Iranian exports could fall

The market is becoming convinced that Trump will be able to disrupt crude exports after his administration slapped sanctions on the head of Iran’s central bank earlier this week, said John Kilduff, founding partner at energy hedge fund Again Capital .

“That showed that he’s not kidding around. It’s very much a forward-leaning, aggressive strategy against Iran,” he said.

A debate had raged in the market over the effectiveness of the sanctions, largely because China and key U.S. allies in Europe still support the nuclear deal. While some analysts said sanctions could wipe 1 million barrels per day of Iranian crude off the market, others said the impact would be limited to fewer than 500,000 barrels a day.

The Trump administration ultimately took a tougher stance than many expected, restoring all sanctions that were in place prior to their suspension in 2016.

Fewer exports would reduce supply in an already tightening market

The European Union is exploring ways to protect the continent’s companies, but the market is losing faith that Washington will issue sanctions waivers to the shippers, insurers and financial institutions necessary to bring Iranian oil to buyers, according to Kilduff.

“It’s not clear right now, but it’s becoming clearer that they will have a problem and oil will be coming off the market,” he said.

France’s Total on Wednesday warned it might abandon a multibillion-dollar gas project in Iran if it could not secure a waiver from U.S. sanctions, casting further doubt on European-led efforts to salvage the nuclear deal.

PDVSA-Foto-archivo_NACIMA20160128_0057_6Meanwhile, concerns are mounting over falling output in Venezuela after ConocoPhillips moved to seize the assets of Venezuelan state oil giant PDVSA.

“The screws are really tightening on Venezuela,” Dan Yergin, vice chairman of IHS Markit, told CNBC on Wednesday.

thumbnailimage.imgAlso boosting the market, the U.S. Energy Information Administration reported on Wednesday that oil in storage in the United States fell more than expected, dropping by about 1.4 million barrels. Stockpiles of refined products like gasoline and distillates also fell.

The United States is approaching the summer driving season, when refineries typically draw down inventories to meet increased demand at the gas pump.

indexHowever, the Paris-based International Energy Agency on Wednesday warned that recent strength in demand for oil could soon moderate. The adviser to developed nations knocked down its 2018 forecast for growth in demand from 1.5 million barrels a day to 1.4 million barrels a day in its monthly report.

“While recent data confirms strong growth in 1Q18 and the start of 2Q18, we expect a slowdown in 2H18 largely attributable to higher oil prices,” IEA said.

The agency also sees higher oil prices providing an incentive for U.S. drillers to pump more crude. It raised its expectation for U.S. oil output growth for 2018 by 120 thousand barrels a day.

The United States is now pumping more than 1.7 million barrels a day, according to the latest preliminary weekly reading from EIA. The nation’s drillers are quickly closing in on top producer Russia, which pumps about 11 million barrels a day.

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