Oil Hits Six-Month High as U.S. Ends Waivers on Iran Oil Imports

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April 22, 2019

Oil Hits Six-Month High as U.S. Ends Waivers on Iran Oil Imports

By Dan Molinski

–Oil prices surged Monday to their highest level since late October after the White House said it was ending waivers for countries to import Iranian oil, a move that could put a squeeze on global crude supplies.

–West Texas Intermediate futures, the U.S. oil benchmark, was 2.3% higher at $65.50 a barrel on the New York Mercantile Exchange, putting it on track for its highest close since Oct. 31.

–Brent crude, the global oil benchmark, was up 2.3% at $73.64 a barrel on London’s Intercontinental Exchange.

HIGHLIGHTS

Iran Waivers: A year ago, President Trump withdrew from a 2015 Iran nuclear deal that he said wasn’t working and announced tough sanctions that prohibited any and all countries from importing Iranian oil. However, in November Mr. Trump partially walked back that order by granting eight countries including China and India a 180-day waiver to continue to buy Iranian crude despite U.S. sanctions. Now, with that deadline for renewing the waivers set for May 2, the White House said the waivers are completely ending and that Iranian exports should fall to zero. It added the U.S., Saudi Arabia and the United Arab Emirates plan to increase crude-oil output as an offset to keep global oil markets adequately supplied.

“Maximum pressure on the Iranian regime means maximum pressure. That’s why the U.S. will not issue any exceptions to Iranian oil importers,” Secretary of State Mike Pompeo said in a Twitter posting Monday. “The global oil market remains well-supplied. We’re confident it will remain stable as jurisdictions transition away from Iranian crude.”

U.S. oil prices were already 41% higher so far this year, and analysts said Monday’s announcement from the White House keeps that rising-trend firmly in place.

“This just puts more upward pressure on oil prices,” said Peter Cardillo, chief market economist at Spartan Capital. “And while there will be ample pressure from the White House for OPEC and non-OPEC countries to increase production, I don’t think this is going to cause a reversal in the market in terms of sentiment.”

While the end of the waivers are unlikely to drive Iran exports to absolutely zero, analysts at JBC Energy said in a research note it certainly could take a big chunk out of the 1.4 million barrels a day Iran exported during the first three months of this year. “At this point we would deem at least half of this total to be at immediate risk, translating into an accelerated decline in Iranian output over 2019,” the JBC analysts said.

INSIGHT

Gas Prices: The surge in oil prices this year has also seen a jump in domestic gasoline prices at the pump, and analysts said the end of Iran waivers are likely to send prices even higher. The national average for a gallon of regular gasoline stands at $2.84 a gallon, up 22 cents a gallon from a month ago, and 9 cents a gallon higher from a year ago. That makes a $3-a-gallon U.S. average, which hasn’t been seen since 2014, a possibility.

The end of Iran waivers “could directly cause another round of gas price increases just as the national average reaches its highest level in months and points to a more painful summer at the pump,” said Patrick DeHaan, head of petroleum analysis at price-tracking firm GasBuddy. “With such a policy move, if OPEC fails to increase output to offset the likely drop from an end to Iran waivers, expect oil prices to continue to surge. This will cost Americans billions.”

AHEAD

— The American Petroleum Institute will release its weekly data on oil inventories on Tuesday at 4:30 p.m. ET, followed by official data Wednesday from the Energy Information Administration.

Write to Dan Molinski at Dan.Molinski@wsj.com

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