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U.S. Oil Prices Hit $70 a Barrel for First Time Since ’14 U.S. Oil Prices Hit $70 a Barrel for First Time Since ’14
(about 2 hours later)
Benchmark prices for American crude oil cracked $70 a barrel on Monday, the first time it has climbed that high since 2014, as investors factored in the prospect of President Trump pulling the United States out of an international agreement that eased sanctions on Iran in exchange for restrictions on its nuclear program. Benchmark prices for American crude oil cracked $70 a barrel on Monday, the first time they have climbed that high since 2014, as investors factored in the prospect of President Trump pulling the United States out of an international agreement that eased sanctions on Iran in exchange for restrictions on its nuclear program.
Mr. Trump, who faces a deadline of May 12 to decide whether to withdraw from the Iran deal, has threatened to do so unless Britain, France and Germany agree to make wholesale changes to the agreement.Mr. Trump, who faces a deadline of May 12 to decide whether to withdraw from the Iran deal, has threatened to do so unless Britain, France and Germany agree to make wholesale changes to the agreement.
The fear among investors is that a United States exit from the deal would probably lead to new oil sanctions being imposed on Iran, the world’s fifth-largest producer of crude oil last year, further curtailing a global supply that is already relatively tight. “The market is watching nervously,” Ann-Louise Hittle, an oil analyst at the market research firm Wood Mackenzie, said of the deadline.
The Organization of the Petroleum Exporting Countries — the powerful cartel of oil-producing nations led by Saudi Arabia — has restrained production since last year while making common cause with oil-dependent Russia to keep a cap on global supply and to prop up prices. The flow of oil to the global market has been further constricted as a result of the political and economic crisis plaguing Venezuela, another major producer of crude, in recent years. The fear among investors is that a United States withdrawal from the deal would lead to new sanctions on Iran, the world’s fifth-largest producer of crude oil last year, further curtailing a global supply that is already relatively tight.
A boom in production in the United States has helped offset some of the tightening in recent months. But higher prices elsewhere have prompted American producers to sell on the global market, driving oil exports to record highs and pulling domestic oil prices higher. Analysts estimate that reimposing sanctions on Iran could reduce the country’s oil sales by 300,000 to 600,000 barrels a day, or perhaps as much as 1 million barrels a day. But imposing new sanctions would most likely take time. And if prices stay high, Iran could increase its earnings from oil sales in the short run.
The cost of a gallon of gasoline in the United States has followed suit, with the national average price for unleaded regular climbing above $2.80 in recent days. Energy companies seem poised to benefit from the surge. The energy sector led the broader Standard & Poor’s 500-stock index higher Monday, rising by more than 2 percent, compared with the broader index, which was up less than 1 percent. “Our base case is the rollout of sanctions will be quite slow and messy,” said Ben Cahill, an analyst at the market research firm Energy Intelligence.
“In the very short term,” he added, “the price run-up could benefit” Iran.
That threat of a reduction in supply coincides with production cuts by OPEC, which is led by Saudi Arabia, and Russia, one of the world’s largest oil producers, that have helped drain a glut that was depressing prices. Their deal was reached in 2016 and began to take effect last year.
OPEC has a spotty track record of carrying out production cuts, but compliance has been strong this time. “I think we are where we are because OPEC got their groove back,” said Helima Croft, an analyst at RBC Capital Markets.
The flow of oil to the global market has been further constricted as a result of the political and economic crisis plaguing Venezuela, another major producer of crude, in recent years.
The reduced global supply — combined with the solid global economy — have helped push oil prices higher since they fell below $30 a barrel in early 2016. The rising tide has lifted the price of the international benchmark, Brent crude, above $76.
“It is mostly a fundamentals-driven market but the icing on the cake is the worry about Iran,” said Michael Lynch, president of Strategic Energy and Economic Research, a consulting firm.
A boom in production in the United States has helped offset some of the tightening in supply in recent months. But higher prices elsewhere have prompted American producers to sell on the global market, driving oil exports to record highs and pulling domestic oil prices higher.
The price of a gallon of gasoline in the United States has followed suit, with the national average for unleaded regular climbing above $2.80 in recent days. Energy companies seem poised to benefit from the surge. The energy sector led the broader Standard & Poor’s 500-stock index higher Monday, rising by more than 2 percent, compared with the broader index, which was up less than 1 percent.