Oil Prices Edge Higher Ahead of Iran Sanctions

With a little over a month before US-imposed sanctions against Iran go into effect, the price of Brent crude has hit a four-year high, and analysts expect the price to grow as supply concerns deepen.

Surging past US$80 a barrel, the price of Brent crude topped US$84 on Monday (October 1), and is expected to trend higher. Autumn is usually the time of year drivers get some relief at the gas pump, however this year those winter gas savings are likely to be non-existent as oil continues its upward projection.

Fears of a supply shortage are keeping prices well above their seasonal average and are likely to only surge higher when Iranian sanctions take full effect next month.

According to sector analysts, the impact of the US ban on Iranian goods could remove 250,000 to 350,000 barrels a day of Iranian crude from the market. In May of this year, Iran exported 2.7 million barrels of oil a day, accounting for roughly 3 percent of the world’s daily crude consumption.

The shortfall the loss of Iranian crude represents is unlikely to be offset by one country. Naturally, the Organization of the Petroleum Exporting Countries (OPEC) members are the first to come to mind when we think about compensating for millions of barrels.

OPEC leaders, however, have not affirmed that they will increase production in other regions to counterbalance the supply shortage. US President Trump even tried to entice OPEC nations to increase production with a tweet he sent out ahead of their September 21 meeting in Algeria.

“Looking ahead, the squeeze in global supplies will almost certainly put gasoline prices under pressure and provide a strong basis for further increases at the pumps at a time when drivers are accustomed to seeing prices soften,” Patrick DeHaan, senior petroleum analyst for GasBuddy, told the press. “Short of producing countries suddenly finding a million spare barrels of oil over the month of October, drivers should brace for even higher prices over the next several weeks.”

Pressure to find millions of barrels, could force Brent crude past the US$100 a barrel mark and potentially beyond before a production equivalent is found.

President Trump has looked to Saudi Arabia, the largest OPEC oil-producing nation, to step up output to shore up the shortfall from Iran. However, it is unlikely that Saudi Arabia will be able to increase production enough to make up for the loss of Iranian oil.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.