Brent oil prices were approaching $75 in early trading today on news reports that US Secretary of State Mike Pompeo will announce on Monday morning Washington time that the Trump Administration will not extend Iran oil waivers and attempt to remove another million barrels a day of Iran oil exports from global markets.
The Washington Post and Financial Times both cited State Department sources in published reports on Sunday evening that the oil waivers from Iran sanctions granted to eight countries last November would not be renewed when they expire in early May.
The move comes after President Trump spoke to Saudi Crown Prince Mohammed Bin Salman and UAE Crown Prince Mohammed Bin Zayed in the last few days. News reports suggest that the Gulf producers pledged to make up for lost Iranian crude on the market. Trump was also under significant pressure from conservatives and Iran hawks in Congress to exert “maximum pressure” on Iran and not renew waivers.
If true, the decision will not only mean maximum pressure on Iran but also maximum pressure on oil markets, especially as we head into the high demand summer season. It will come as a surprise decision to oil markets that will likely result in at least a temporary price spike.
The glass-half-full view for oil markets is there is certainly spare capacity with the Saudis and other Gulf allies, in addition to surging US production. But combined with declines in global crude stocks, continued losses in Venezuela production as well as a possible disruption in Libya, a zero-waivers Iran decision will present a challenge to keeping global oil prices in check.
Most countries will comply with US sanctions but the big $80-plus-per-barrel question is what does China do? It’s not clear that the Administration even knows the answer to this question, and many believe China’s oil imports from Iran, and Venezuela for that matter, are also tied to trade discussions with the US.
In addition to comments from China on its Iran waiver expiring, oil markets will be closely monitoring and gauging the credibility of potential statements on added supplies from Saudi Arabia, Kuwait and UAE. If oil prices are to stay in check, Saudi Arabia and other producers must act fast with strong statements but jittery markets will likely wait to see actual production increases.
The outcome of the Monday’s announcement and subsequent comments by Gulf producers may result in the end of the OPEC's cooperation on its production cut agreement when it expires at the end of June. OPEC’s Joint Ministerial Monitoring Committee meets on May 19 in Jeddah, and the next full OPEC meeting is June 25 in Vienna.
