Oil Patch Press
Oil at $74.15? For real?
Updated: Aug 25, 2018
Oil rallied to $74.15 this week, the highest it’s been in over 3 years. Why?
It has to do with Iran (again), according to Reuters in their article, “Oil gains on anticipation of sanctions on Iran,” (https://www.reuters.com/article/us-global-oil/oil-rises-as-market-anticipates-u-s-sanctions-on-iran-idUSKBN1JP049?il=0).
The article says that commodities traders fear tougher sanctions against Iran are about to come down the pike, cutting off the 5% output in world oil supply from Iran. That seems somewhat unlikely to me, personally, because the article goes on to say that Iran’s major purchasers right now are China and India.
I’m having a hard time believing either of China or India would climb onboard the sanctions train, especially when the alternative means they will have to pay higher prices for oil from other countries. It’s more likely, I think, that China and India will use our tougher sanctions to negotiate a lower price on Iran’s oil—allowing them to buy oil at a discount. What’s the likelihood that America and our allies (those wise enough to hang with us) will retaliate against China or India when they cut off their other oil suppliers in favor of buying just from Iran? What can stop China or India from doing just that?
So no, maybe it's unwise to believe that this sharp rise in oil prices will last more than a few days, a couple of weeks at the most. Everyone who bought August futures at $74.15 just might lose a lot of money when reality plays out. My bets are on the price of spot-market oil being under $70 when August rolls around.
Take a few minutes to read the article, see what you think.