Crude Oil Prices Firm Over Reimposition of Sanctions

Oil prices firmed slightly on Wednesday, supported by concerns that the United States may reimpose sanctions on major exporter Iran, although soaring US supplies capped gains.

Brent crude oil futures stood at $73.23 per barrel, up 10 cents, or 0.1% from their last close, CNBC reported.

US West Texas Intermediate crude futures were up 30 cents, or 0.5%, at $67.55 per barrel.

Iran, a member of the Organization of Petroleum Exporting Countries, reemerged as a major oil exporter in January 2016 when international sanctions against Tehran were lifted in return for curbs on Iran’s nuclear program.

The US President Donald Trump, however, has threatened to reimpose sanctions. Trump will decide by May 12 whether to restore US sanctions on Tehran, which would likely result in a reduction of its oil exports.

“If Trump abandons the deal, he risks a spike in global oil prices ... The reintroduction of US sanctions would hurt market transactions,” said Ole Hansen, the head of commodity strategy at Saxo Bank.

A reintroduction of sanctions without seeing other OPEC members increase production could threaten the market share of the country, he added.

Some analysts, however, said there was a risk that price could slump, as too many oil traders were betting on renewed sanctions.

“If the geopolitical tension subsides or results in a smaller supply disruption than currently priced in, we are likely to see a sharp pullback in investor positioning and an even sharper correction in oil prices than the $5 or so that might be warranted even as macro uncertainties persist,” US bank Citi said in a note to investors.

Beyond the threat of new Iran sanctions, other factors prevented crude prices from rising further.

US crude inventories rose by 3.4 million barrels to 432.57 million in the week to March 27, according to a report by the American Petroleum Institute on Tuesday.

Rising inventories are in part a result of soaring US production, which has jumped by a quarter in the last two years to 10.6 million bpd, making the United States the world’s number two crude oil producer behind only Russia, with 11 million bpd.

US drillers added five oil rigs looking for new production in the week to April 27, according to energy services firm Baker Hughes, bringing the total count to a March 2015 high of 825.