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Is President Trump Helping Crude Oil Bulls or Bears?

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President Trump and Iran 

On May 8, President Trump said that the US is exiting the Iran nuclear deal. On June 26, President Trump pushed Iran’s allies to stop importing crude oil from the country by November 4. Active WTI crude oil prices hit $74.15 per barrel on June 29—the highest level since November 2014.

On July 10, the Trump Administration said that it would consider sanction waivers for some countries importing crude oil from Iran even after November 4. France, Germany, and Britain are exploring ways to keep the Iranian nuclear deal alive. WTI crude oil prices fell 8.2% on June 29–July 17. August WTI oil futures contracts rose 0.03% to $68.08 per barrel on July 17.

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The iShares US Energy ETF (IYE) fell ~0.4% to $41.42 on July 17. The index is composed of US companies in the energy sector. Rowan Companies (RDC), Transocean (RIG), Chesapeake Energy (CHK), and Ensco (ESV) decreased 4.5%, 3%, 2.7%, and 2.6%, respectively, on July 17. These stocks were the top percentage losses in IYE’s portfolio during the same period. These stocks account for ~1% of IYE’s holdings.

Iran’s crude oil production and exports

According to the U.S. Energy Information Administration, Iran’s crude oil production decreased by 25,000 bpd (barrels per day) to 3.78 MMbpd (million barrels per day) in June—compared to the previous month. However, Iran’s production hit 3.85 MMbpd in October 2017, which was the highest level in almost nine years. The output increased after the US lifted sanctions on the country in January 2016.

Iran exported ~2.5 MMbpd of crude oil in June. However, exports hit 2.7 MMbpd in May, which was the highest level since the sanctions were lifted in January 2016.

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Iran and OPEC’s output cut deal

Iran supported the ongoing self-imposed supply cuts until December. On June 22, major oil producers agreed to increase the crude oil production. OPEC decided to bring the production cut compliance back to 100% from higher levels due to unexpected supply outages from member countries.

Iran’s crude oil production plans

Iran’s production averaged 3.8 MMbpd in 2017. The country targets to increase its oil production to 4.7 MMbpd by 2021. Iran is looking for private oil companies to export crude oil, which could limit the impact of US sanctions.

However, US sanctions on Iran could curb the country’s oil production and exports. Iran’s crude oil exports could drop by up to 700,000 bpd by the end of 2018, according to FACTS Global Energy. Lower oil supply from Iran could help crude oil prices and push them higher.

For more on crude oil and natural gas, read A Look at the Bearish Drivers for the S&P 500 and Crude Oil and A Look at the Most Recent Catalysts for US Natural Gas.

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