Author: Tom Whipple

With only two weeks to go before President Trump decides whether the US will withdraw from the Iran nuclear treaty, the oil market’s chief concern is about what could happen if the US reimposes sanctions. Even though Washington would have few, if any, allies helping to reimpose sanctions on Iran, the US carries considerable weight in the world banking system by threatening to deny access to the US to anyone doing business with Tehran. Conventional wisdom holds that renewed sanctions would slow Iranian oil exports and drive prices higher.

In the last two weeks, London oil futures have increased by $7 a barrel, closing last week at $74.06. New York futures closed circa $5.50 below London. This price differential is making US crude very popular on the world markets so that exports are setting records and drawing down US crude stocks. Behind the price surge is the steady drop in world crude stocks; strong demand from Asia as China’s economy grows faster than forecast; the likelihood that OPEC will continue its production cut on into next year; and the possibility that the Trump administration will abandon the nuclear treaty and impose new sanctions on Iran. There also are the deteriorating situations in Venezuela where production seems likely to drop by hundreds of thousands of barrels per day this year, and in Libya where the incapacitation of the country’s military strongman could result in a drop in oil production as local militias reassert themselves.

Oil prices rose by nearly $5 a barrel on concerns that a US and allied attack on Syrian military installations would lead to a wider war. Futures prices closed Friday at $67.39 in New York and $72.58 in London setting multi-year highs. After the markets closed, strikes on Syrian chemical facilities were launched. Initial reports suggest that considerable care was taken to avoid harming Syrian civilians or Russian and Iranian interests. A relatively benign response from Moscow suggests that this attack alone will not lead to more serious hostilities in the immediate future that could drive oil prices higher.

Oil futures have fallen about $3 a barrel from two weeks ago when London prices were close to $70. New York futures closed out last week circa $62 and London $67. Prices held steady until Thursday when President Trump announced another round of the tariff war with China sending prices down $1.50 a barrel on Friday. So far neither side has actually imposed any new tariffs, leaving observers to wonder whether Washington and Beijing are simply posturing before negotiations, or a major trade war is in the offing. Other than the possibility of a trade war, the trashing of the Iran nuclear treaty, increasing tensions in the Middle East, and the Korean situation, most of the news lately has suggested higher prices are in the offing.

After an up-and-then-down week, oil and gas markets closed slightly higher Thursday ahead of the Easter holiday weekend. All major U.S. and European stock exchanges and markets were closed Friday for Good Friday, which coincides with the Passover holiday that starts Friday at sundown.