WASHINGTON—Oil prices spiked to nearly a six-month high with the U.S. decision to further clamp down on Iranian oil exports.
The Trump administration announced April 22 that it would end the waivers that allowed countries to buy Iranian crude oil without facing U.S. sanctions.
The U.S. benchmark, West Texas Intermediate crude futures rose $1.70, or 2.7 percent, to $65.70 per barrel, the highest level since Oct. 31, 2018. And Brent crude futures jumped more than 3 percent to $74.52 per barrel around midday, hitting the highest level since Nov. 1, 2018.
In November of last year, Trump reinstated economic sanctions on Tehran but granted waivers to eight countries for oil imports from Iran to prevent a spike in gas prices.
“We did this to give our allies and partners a chance to wean themselves off of Iranian oil, and to assure a well-supplied oil market,” Secretary of State Mike Pompeo said at a press conference on April 22.
“Today, I am announcing that we will no longer grant any exemptions. We’re going to zero—going to zero across the board,” he said, adding that Washington would enforce sanctions and monitor compliance.
The Trump administration believes that global oil and production are stable and oil prices are low enough to be able to fully enforce sanctions on Iranian oil.
A total of 23 countries that once were buyers of Iranian crude already have stopped importing from Iran, according to Brian Hook, a senior adviser to the secretary of state.
“With oil prices actually lower than they were when we announced our sanctions, and global oil—and global production stable, we are on the fast track to zeroing out all purchases of Iranian crude,” he told reporters on April 2.
Oil sanctions have taken nearly 1.5 million barrels a day of Iranian oil off the market since May 2018, according to the State Department.
After collapsing in the last few months of 2018, Brent prices jumped by more than a third and U.S. crude soared more than 40 percent since the beginning of this year.
Analysts predict that the end of Iran oil waivers may send prices even higher. Oil supply is already tight, according to Phil Flynn, an analyst at Price Futures Group in Chicago.
Venezuela production sank close to only 600,000 barrels per day, he wrote on a blog. In addition, the Organization of the Petroleum Exporting Countries (OPEC) and Russia have removed about 1.7 million barrels of oil a day, as part of supply cuts that started on Jan. 1.
“So, President Trump is fighting a supply war on many fronts, Iran, Venezuela, Libya, and unless OPEC steps up and raises production, the world is going to end up with a shortfall of supply,” he warned.
“Now some in the Trump administration argue that there is plenty of supply, but we are not sure how they are doing that math.”
The administration, however, is confident that the major oil producers such as Saudi Arabia and the United Arab Emirates will support the U.S. decision, as it’s in line with their objectives as well.
Pompeo said these suppliers are working directly with Tehran’s former customers to make the transition away from Iranian oil less disruptive.
He said the administration has been working “with major oil-producing countries to ensure the market has sufficient volume to minimize the impact on pricing.”
“Both the Kingdom of Saudi Arabia and the United Arab Emirates have assured us they will ensure an appropriate supply for the markets. And of course, the United States is now a significant producer as well.”
Crude production in the United States increased by 1.6 million barrels per day last year over 2017 levels. And the U.S. Energy Information Agency predicts that there will be an additional 1.5 million barrels per day this year. The United States became a net oil exporter in 2018 for the first time in almost 75 years.