Concern about US Sanctions Against Iran Considered a Top Driver of Current Oil Prices
The global oil industry is more concerned about the US-imposed sanctions against Iran than a supply interruption, according to experts. These events are transpiring while US demand for crude oil is in its lowest level since the global economic recession began.
A weak recovery of the economy, plus cautious sentiment from consumers, are continuously suppressing demand for energy commodities. Nevertheless, remaining worries about geopolitical tensions against Iran has driven several governments to consider the release of petroleum reserves. Basically, it appears that markets have sufficient supplies although emotional factors may drive particular aspects of the fuel market.
In the July report of the American Petroleum Institute, crude oil demand appeared to be at its lowest level in almost four years. The July petroleum deliveries of the United States fell to about 18 million barrels daily, the lowest level for July since 1995 and also the lowest level since the worldwide economic recession began in 2008. US oil production, however, attained its highest July figure since 1998, at 6.2 million barrels daily, and overall refinery inputs moved up by 2.3% for the month of July to attain its highest year-to-date level.
API chief economist Mr. John Felmy said that poor consumer demand largely reflects a weak recovery of the US economy and the eurozone’s continuous negativity.
The oil price per barrel for delivery in September recently fell by 0.1% to $95.88 in the NYMEX to end its four consecutive days of increase. Abroad, the Joint Organization Data Initiative reports that Saudi Arabia’s crude oil output reached its 30-year high in June. Crude oil futures prices started to fall last week due to talks by several Western nations of a potential release of their strategic petroleum reserves. Josh Earnest, spokesman of the White House, confirmed that releasing the SPR is one of Washington’s options.
The disruption of Libya’s oil production due to civil war in 2011 was the last time that the strategic reserves were tapped by OECD-participant governments. But when the oil price per barrel reached almost $100 this year, the market’s majority was more worried about sanctions versus Iran than a physical supply interruption, as was last year’s case.
According to the API, most of the oil demand drop was due to lower gasoline consumption in the US. Closures of California and Midwest refineries, and an oil spill last month in Wisconsin, led the prices of retail gas over the $4 a gallon mark. Consumers strongly react to that benchmark, however, with the improvement of fuel efficiency, it may be more of a reaction of emotions in spite of continuous concerns of unemployment and personal finances. Nevertheless, with the last major holiday in the United States before the approach of the Christmas season, political direction may reflect more of public sentiment rather than a legit concern regarding the fuel market’s physical shortages.
By: Chris Termeer