Crude oil prices rose sharply Wednesday, driven up by a decline in the U.S. oil supply, and the expected effects of a new wave of sanctions on Iran. Iran is an influential member of the Organization of the Petroleum Exporting Countries (OPEC) and one of the worlds largest oil producers.
Brent crude, a benchmark oil, crossed the $80 per barrel mark earlier Wednesday before coming to rest at $79.74 per barrel at the end of the day. This latest increase puts Brent’s price at the highest level it’s been since the end of May, according to Reuters.
In addition to the impending sanctions on Iran, the U.S. stock of “crude inventories” fell by a dramatic 5.3 million barrels in the last week. This decline is vastly more substantial than the 805,000 barrels predicted by the analysts from the U.S. Energy Information Administration.
“Today’s crude stock draw of 5.3 million barrels fell far short of the (American Petroleum Institute’s) decline but was significantly larger than the normal draw of around 1 million barrels for this particular week,” said Jim Ritterbusch, president of oil trading advisory firm Ritterbusch and Associates, according to Reuters.
While the decline of the U.S. crude inventories is significant, the most considerable factor currently affecting crude prices remains the impending sanctions on Iran’s oil exports. As the Iranian sanctions begin to take effect, the world’s supply of oil will decrease, making crude more valuable and raising prices.
“Iran is increasingly becoming the preoccupation of the crude market. The last couple of weeks have seen the expected squeeze on Iranian crude flows taking shape, with overall outflows down markedly,” said consultant JBC Energy while speaking to CNBC.
The Iranians are not just rolling over and accepting their fate, but are instead taking measures to soften the blow. According to OilPrice.com, the OPEC country is currently storing its oil onboard its fleet of tanker ships, many of which are sitting idly in port. The vessels, owned by “the National Iranian Tanker Company” will act as “floating storage” platforms. The country is expected to place as much crude as it can onboard the tanker ships while it still can.
Analysts expect Iran’s exports to “average as little as 1.5 million barrels a day in September according to the preliminary loading program, compared to around 2.8 million barrels a day of oil exports in April and May,” said Amrita Sen, chief oil analyst at Energy Aspects via a note to clients, according to OilPrice.com.
Alexander Novak, Russia’s energy minister, weighed in on the Iranian sanctions, stating Wednesday that world’s crude markets “were fragile” due to the current state of global politics and concerns regarding the world oil supply, according to the BBC.
“This is a huge uncertainty on the market – how countries, which buy almost 2 million barrels per day of Iranian oil, will act,” Novak said. “The situation should be closely watched, the right decisions should be taken.”
In response to the Iranian sanctions, Saudi Arabia, the world’s largest oil exporter, agreed at an OPEC meeting earlier in the year to “significantly increase” it’s oil production to counter the loss of Tehran’s exports, according to a report from the Financial Times.
Further complicating crude futures is Hurricane Florence, a massive Category 3 storm currently forecasted to strike the U.S. east coast later in the week, according to models from the National Oceanic and Atmospheric Administration (NOAA). As people flee from coastal areas, gas prices in the region are expected to rise.
“A storm like this typically causes an increase in fuel purchases in the market and a slowdown in retail demand. Motorists can expect spikes in pump prices to be brief, but possibly dramatic,” said Jeanette Casselano, AAA representative via a statement.