The oil price has remained close to a 3.5 year high in today’s trading session as the market digests the fallout from the economic sanctions reintroduced against Iran by US President Donald Trump.
Although most other countries, as well as the European Union decided to stick with the nuclear deal struck with Iran it seems as if some companies are worried to get on the wrong side of the US government and are prepared to also cut ties.
The French oil giant Total SA said earlier in the week it would pull out of an agreement to help develop Iran’s South Pars field, if it wasn’t provided an exemption by the U.S government and with such big Non US companies pulling out, the sanctions may have a far bigger effect the earlier predicted.
This “confirmed that European companies with business and banking activities in the U.S. cannot afford to go up against the U.S. Iran sanctions unless they get assurances against possible secondary sanctions for their U.S. activities,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets.
Another factor expected to keep the oil prices well supported into the nearest future are the elections this weekend in Venezuela wher3e incumbent leader Nicolas Maduro is expected to get reelected as any potential opposition members have fled abroad or are in jail.
Because of rampant corruption during Manduro’s rule, the oil supplies from Venezuela have been seriously disrupted which is crippling there oil exports, and many believe that the US is on the verge of also placing sanctions on them as well which will really devastate their oil supplies.
Marcelo Carvalho, head of emerging market research, Latam at investment bank BNP Paribas compares the reduction in oil from Venezuela to the Opec Production cuts introduced to boost the oil price,
“The type of numbers we’re talking about there are comparable to the OPEC [cuts] for the overall group, so one country alone is doing what the whole group promised to cut back,” he said
“The drop in Venezuela’s oil production has been an important element of the rise in global prices for oil, there’s no doubt about it,” he added.
Some are now predicting that the price of oil may once again reach $100 sooner rather than later.