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Geopolitical Tensions Impact Crude Oil Prices

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Nov. 20 2020, Updated 3:32 p.m. ET

Iraq and Kurdish referendum 

The people in Kurdistan voted in a referendum for independence on September 25, 2017. As a result, there were threats of supply disruptions from Turkey. The expectations of supply outages pushed Brent (BNO) crude prices to a 26-month high in September 2017. Higher Brent and US crude oil (USO) (DBO) prices have a positive impact on oil producers (VDE) (RYE) like Saudi Aramco, Rosneft, Stone Energy (SGY), and Bonanza Creek Energy (BCEI).

On October 3, 2017, Iraq banned selling dollars to the banks in Kurdistan due to the vote in the referendum. Geopolitical tensions in Kurdistan and neighboring countries could impact crude oil prices due to a supply outage.

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President Trump and Iran’s nuclear deal 

President Trump thinks that the 2016 nuclear deal with Iran is one of the worst deals. Iran’s crude oil production has risen by 1 million barrels per day since the US lifted sanctions against Iran in January 2016.

If President Trump cancels the 2016 nuclear deal, it would mean a renewed imposition of sanctions against the country. Renewed sanctions could cripple Iran’s crude oil production and exports. A fall in Iran’s crude oil production and exports could tighten the global supply and demand balance, which would be bullish for crude oil (BNO) (UCO) prices.

Venezuela 

A Reuters survey estimates that Venezuela’s crude oil production fell by 20,000 bpd (barrels per day) to 1,950,000 bpd in September 2017—compared to the previous month. Reuters estimates that production is near a 30-year low. President Trump imposed sanctions on Venezuela’s state oil company, PDVSA, and the Venezuelan government in August 2017. Electricity outages and the economic crisis led to the fall in Venezuela’s crude oil production.

US crude oil imports from Venezuelan hit a 14-year low in September 2017. Citgo, Valero (VLO), Phillips 66 (PSX), are Chevron (CVX) are major importers of Venezuelan crude oil.

Impact 

Historically, geopolitical tensions have impacted crude oil prices due to the supply outage. A supply outage due to geopolitical tensions in Iraq, Iran, and Venezuela could benefit crude oil (BNO) (UWT) prices.

For some crude oil price forecasts, read Crude Oil Price Forecasts: Downgraded for the Fifth Month.

Read Are US Crude Oil Supplies Getting Bearish for Oil Prices? and Crude Oil Has Risen since June: Time to Short Crude Oil Futures? to learn more.

Read An Opportunity in Natural Gas? for updates on natural gas.

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