Geopolitics Beat Fundamentals To Lift Oil Prices

Markets Insider

In addition to fundamentals, there has been a shift in geopolitical sentiment after France's president Emmanuel Macron yesterday called for a new Iran deal to avoid the imposition of US sanctions against Tehran that the latter warned will lead to serious consequences, without going into detail.

Traders said markets climbed on expectations that the United States will in May re-impose sanctions against Iran, a major oil producer and member of the Organization of the Petroleum Exporting Countries (OPEC).

Oil prices have bounced back over the past 24 hours, with Brent crude oil back above $74 a barrel and close to its recent highs.

Trump will decide by May 12 whether to restore US sanctions on Tehran, which would likely result in a reduction of its oil exports.

US President Donald Trump has been very vocal of his displeasure with the current 2015 deal that has lifted trading sanctions and implemented regulatory safeguards on Iran's nuclear capabilities.

West Texas Intermediate was up about 1% to $68.70 a barrel at 8:45 a.m. ET.

Oil output in Venezuela, a member of the Organization of the Petroleum Exporting Countries (OPEC), has fallen from nearly 2.5 million barrels per day (bpd) to just around 1.5 million bpd now due to political and economic turmoil in the South American country.

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Only Russia now produces more, at around 11 million bpd.

The other supply constraint is that "midstream pipelines connecting Canadian oil sands to Cushing (US WTI delivery point) and Permian basin to the US Gulf coast are both operating at near-full capacity utilisation" and the situation is unlikely get better until new projects get completed in 2019.

Crude stocks at the Cushing, Oklahoma, delivery hub for USA crude futures rose by 459,000 barrels, EIA said.

The statistical arm of the US Energy Department at the Energy Information Administration on Wednesday, April 25, said crude oil export from US hit 2.331 million barrel per day.

Gasoline production averaged 9.9 million barrels daily last week, the EIA also said, and distillate production stood at 5 million bpd. Alternatively, if current support at the 72.44 level holds and the price reacts to the upside after the release of US Crude inventories data, it could open up the way for a retest of the initial upside resistance at 74.17, followed by 74.61 and the 75.00-75.50 levels.

Said Greg McKenna, chief market strategist at futures brokerage AxiTrader, "The market does look a little toppish".

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