Oil prices were once again visited by a seismic event this week, hot on the heels of the upward movements witnessed following the Allied response to the Syrian chemical attack on civilians. This time around the trigger has been the withdrawal of the USA from the agreement between the P5+1 with Iran. Crude Oil prices tumbled 4% in the run up to the announcement, picked up during the announcement, and flipped a couple more times, ending the day at $70 a barrel. Let’s take a closer look at the developments and what they mean for energy futures and oil and gas investment opportunities.
What happened so far
President Trump made the stunning announcement that the US would exit the Iran Nuclear Deal and impose harsh sanctions instead. This effectively left people hoping that a visit by the French Premier, dubbed ‘The Trump Whisperer’ and the German Chancellor would persuade President Trump to rethink the move. Though the Treasury Department announced the reinstatement of all sanctions ‘in full effect’, including those targeting Iranian oil and gas, this could take a few months as guidance for different entities is rolled out.
Impact on oil prices
The tightening of supply and the geopolitical risk premium have already seen crude oil prices hitting an all-time high since 2014. Forecasts of a significantly large drop in crude inventories also worked to see a 2.5 percent rise in the S&P 500 Energy Sector. Some of the recorded highs include crude prices, which peaked at $77.43, as well as US West Texas Intermediate, which rose to $71.36. Despite a pledge by Saudi Arabia to work with OPEC and Non-OPEC countries to mitigate the shortfall, the resuscitation of sanctions on Iran is sure to re-ignite tensions in the Middle East and push oil prices way beyond the $65.58/barrel average predicted by Federal government forecasters in the run-up to Trump’s announcement.
What to expect in future
The impact of the Trump administration’s decision on oil prices will largely depend on the extent to which it restricts the flow of Iranian oil. Estimates so far point to a million barrels per day as being the extent to which the sanctions can affect outflows of oil from the OPEC nation. What makes predictions a bit tricky is the unilateral nature of the US decision. The deal was co-sponsored by a number of her allies, including Russia and China. This means that some of Iran’s major customers may not play ball and ignore the sanctions altogether. Apart from the European Union and China, other major customers for Iranian oil include South Korea and India. Coming in a period of sustained production cuts by OPEC and Russia, taking out Iranian oil is likely to hold the prices down.
The Time to Invest is NOW!
US production is expected to surge to cover for the loss of Iranian oil, with the shale revolution expected to play a significant role, boosting energy investment in the USA. Talk to FIG Tree Capital Ventures today to hear how you can take advantage of lucrative oil and gas investment options. To discuss how you can leverage oil and gas investment opportunities to diversify or grow your portfolio, simply call 866-300-2170 or 866-894-7309. You can also write to us at info@figtreecapitalventures.com.
