Oil Prices Up for Third Straight Trading Day
Crude oil futures increased for the third consecutive trading day Tuesday.
West Texas Intermediate (WTI) crude for June delivery added 75 cents to end the day at $66.30 per barrel. The benchmark peaked at $66.60 and bottomed out at $65.58.
June Brent futures added 47 cents to settle at $74.51 per barrel.
Barani Krishnan, senior commodities analyst with Investing.com, remarked that the Trump administration’s decision to stop granting sanctions waivers to any importer of Iranian crude oil amounts to granting Saudi Arabia “full autonomy of the oil market.”
“Having put into action his plan to bring Iranian oil exports to zero, the President now expects the Saudis and the rest of OPEC to quickly reverse their production cuts, as well as replace lost barrels from Iran and other sources such as Venezuela and Libya,” said Krishnan. “And Trump wishfully believes that low oil prices will come again with the Arabs at the wheel, just like how world peace would.”
Krishnan sees a different scenario playing out.
“The reality is this: now that the Saudis have Trump where they want, they’re likely to milk his decision on Iran for whatever it’s worth before slowly adding one barrel at a time to supply,” Krishnan said. “This means that the House of Saud is likely to let hedge funds front-run the market as much as possible before making any meaningful intervention. That could mean $80 WTI and $90 Brent before the year-end – remember last October? – before the market possibly implodes on demand destruction.”
For now, however, commodity trading advisors are eager to “chase crude prices higher until there is – to borrow a page from the Saudi playbook – enough evidence of ‘market rebalancing,’” Krishnan continued. What is different in this case is that changing the market’s direction will require proof that the flow of oil is abundant again – compared to the “notion of tight supply” that Saudi Arabia advanced several months ago, he said.
“Whoever isn’t convinced about the contrasting stances of the President and his so-called Arab allies need only look at the remarks that have emerged from the White House and House of Saud over the past 24 hours,” Krishnan said. “Trump first tweeted: ‘Saudi Arabia and others in OPEC will more than make up the Oil Flow difference in our now Full Sanctions on Iranian Oil.’ Saudi Energy Minister Khalid al-Falih in return said the kingdom will work to ensure the availability of oil supplies and the lack of market imbalance following the end of the U.S. sanction waivers on Iran.”
In his response Falih essentially conveyed the message that OPEC will determine whatever oil flows to the market and that the crude will neither be free-flowing nor at prices consumers want to pay, Krishnan noted.
“The truth is the biggest losers from Trump’s ban on Iranian oil will not be the Iranians,” said Krishnan. “They will be the countries that primarily import oil, and these include the biggest economies from the United States to China and India. They and their people will pay more in the coming weeks and months as Saudi Arabia and its allies in OPEC maintain a razor-sharp focus on revenue rather than ensuring enough oil for the world.”
The price of a gallon of reformulated gasoline (RBOB) advanced slightly on Tuesday. The May RBOB contract gained less than one cent to end the day at $2.13.
Henry Hub natural gas futures retreated during Tuesday’s trading. The May gas contract price lost seven cents, settling at $2.455.
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