Geopolitical tension between the US and Iran
On May 8, President Trump said that the US is exiting the Iranian nuclear deal. President Trump plans to impose new sanctions on Iran.
The news of fresh sanctions on Iran limited the downside for oil prices on May 8. US crude oil prices fell ~2.4% the same day. However, June WTI oil futures contracts rose 2.1% from the previous settlement and were trading at $70.99 per barrel at 7:40 AM EST on May 9—the highest level since November 2014.
The PowerShares DB Oil Fund (DBO) decreased ~0.3% to $12.11 on May 8. DBO aims to track the performance of the DBIQ Optimum Yield Crude Oil Index Excess Return. Laredo Petroleum (LPI), Energen (EGN), and Marathon Oil (MRO) rose ~7.4%, 3.6%, and ~3.4%, respectively, on May 8.
Iran’s crude oil production
Iran is OPEC’s third-largest crude oil producer. The EIA estimates that Iran’s crude oil production increased 0.3% to 3.83 MMbpd (million barrels per day) in April—compared to the previous month. The production also increased 0.4% or by 15,000 bpd (barrels per day) year-over-year.
Iran’s oil production is near a nine-year high. The production increased after the US lifted sanctions on Iran in January 2016. Brent prices have risen ~101% since January 1, 2016. The United States Brent Oil ETF (BNO) follows the performance of active Brent crude oil futures. BNO has risen ~72% since January 1, 2016.
Iran and OPEC’s output cut deal
Iran’s crude oil production plans
Iran’s oil production averaged 3.8 MMbpd in 2017. Iran plans to increase its oil production to 4.7 MMbpd by 2021. However, new sanctions on Iran could curb the country’s crude oil production and exports. Analysts estimate that Iran’s crude oil supplies could fall by 300,000 bpd–1,000,000 bpd depending how many countries support fresh sanctions on Iran. Lower supply from Iran could support crude oil prices or push them higher.
Next, we’ll discuss the API’s crude oil inventories.