Oil jumps after USA abandons Iran deal, plans 'highest level' sanctions

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Brent increased 8 per cent MoM to average $71.6 per barrel.

Even though a bird's eye view of the geopolitics on display this week suggest that the reinstatement of sanctions against Iran will have much less impact than some dramatically-inclined analysts think and that export shortfalls will likely be compensated by the Saudis or other Organization of the Petroleum Exporting Countries (OPEC) members relaxing their output restrictions, pundits were nonetheless concerned about a host of emerging dynamics. As it stands now, OPEC seems to be expecting a tighter market in 2018 with higher global demand and lower non-OPEC supply growth.

Oil held losses below $71 as OPEC signalled it has enough spare capacity to mitigate any impact on markets even if renewed United States sanctions on Iran curbs exports from the group's third-largest producer.

The remarks from Middle East producers "did force investors to look a little bit closer at the impact of United States sanctions on Iran and certainly there's some questions about the impact that we'll eventually see", Daniel Hynes, a senior commodities strategist at the Australia & New Zealand Banking, said by phone from Sydney. Gasoline stocks were down (-2.2m vs. -0.9m expected) while distillate stocks (-3.8m vs. -1.5m expected) were also down.

Why are gas prices rising?

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"Increasing crude oil prices affect the USA economy primarily through two channels: putting downward pressure on consumption by reducing households' non-energy disposable income; and increasing nonresidential fixed investment as oil-related investment activity picks up". Non-Opec production remained flat for the second consecutive month at 58.6 mbpd in March mainly because of higher production from the USA and the North Sea region, which was offset by lower production from other non-Opec producers.

The report also presented the country's average heavy oil price to be $66.56 in April, a $4.41 or 7.1 percent rise from $62.15 in March.

The group, along with Russian Federation and several other producers, has been limiting its output since January 2017 in order to drain a glut of oil that caused a historic price crash.

In China, the biggest single buyer of Iranian oil, Shanghai crude futures hit their strongest in dollar terms since they were launched in late May, around $73.20 per barrel.

John Kilduff, founding partner at Again Capital, summarized the familiar motivations of traders by saying, "It's the same witches brew of bullish stuff: Iran, Venezuela, the lack of alacrity by Saudi Arabia to bring more oil onto the market" to compensate for the expected drop in Iranian crude exports in the next few months. We keep RIL, Petronet LNG, IOC and ONGC as our top picks.

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