Could Situation With Saudi Arabia Mean Big Spike In Oil Prices?

Anna Jefferson
October 18, 2018

Crude prices climbed to multiyear highs in recent weeks, with investors increasingly anxious that as much as 2 million barrels a day of Iranian oil exports could be removed from the global supply when USA sanctions on the country are applied next month.

US West Texas Intermediate crude was up 35 cents, or 0.5 percent, at $72.27 a barrel by 0007 GMT on Wednesday, having settled up 14 cents.

Oil markets are also grappling with record US output, fueled by shale production, and America's removal in late 2015 of longstanding crude-export limits.

Whether it's the need he's created for replacement supplies from Iran, or other actions by the USA president, Trump's policies are now having a direct impact on where oil is flowing, said Eugene Lindell, an analyst at JBC Energy in Vienna.

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In WTI, wagers on falling prices have increased as USA inventories piled up, and concerns about constrained Permian takeaway capacity and the build-up of stocks have prevailed over the past few weeks.

Tensions have flared between the USA and Saudi Arabia over the disappearance of Jamal Khashoggi, a journalist with the Washington Post who was critical of the Middle East nation.

"The oil price pain being now felt would have been much worse if we had believed people who 4-5 years ago said that oil demand had peaked and would decline", Mr. Al-Falih added.

"A tick higher in refining activity and a drop in production due to hurricane activity in the Gulf was not enough to halt a fourth consecutive climb in stocks - and a solid one at that", said Matt Smith, director of commodity research at ClipperData in Louisville, Kentucky.

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Western pressure mounted on Riyadh to provide answers, but President Donald Trump's comments suggested that White House may not take additional action against the Saudis, particularly after Saudi Arabia said it will conduct an investigation.

The United States announced new sanctions after withdrawing from a nuclear deal with Iran in May. As sanctions on Iran start up in a matter of weeks, China and India's key role in the global market is going to become even more in focus.

MRPL would look at buying Iraqi oil to replace Iranian oil, he said, adding that the company has already made some payments in rupees to Iran for oil.

Gasoline stocks dropped by 3.4 million barrels, compared with analyst expectations in a Reuters poll for a 1.1 million-barrel decline.

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While there are many factors that could influence global oil prices, Saudi Arabia and other major producers will continue to act to cushion the market from oil price shocks, Falih said at the IHS CERA conference. There's an urgent global need to find replacement barrels for Iran's, whose exports might just collapse next month.

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