NEW YORK: Oil prices rallied by about 3 per cent on Monday to their highest since late 2018 as the United States was set to announce that all imports of Iranian oil must end or be subject to sanctions.
Brent crude futures rose as much as 3.3 per cent to $74.31 a barrel, the highest since Nov 1, before easing back to $73.82 by 0452 GMT, up 2.6 per cent from their last close.
US West Texas Intermediate (WTI) crude futures climbed by as much as 2.9 per cent to $65.87 per barrel, the most since Oct. 31, and were at $65.38 at 0452 GMT, up 2.6 per cent from their last close.
News that the United States is preparing to announce on Monday that current buyers of Iranian oil would no longer be given waivers to current sanctions was first reported on Sunday by Washington Post foreign policy and national security columnist Josh Rogin.
Secretary of State Mike Pompeo will announce “that, as of May 2, the State Department will no longer grant sanctions waivers to any country that is currently importing Iranian crude or condensate”, Rogin said, citing two State Department officials that he did not name.
A person familiar with the situation told Reuters the report was accurate, although a State Department spokesman declined to comment.
In March, Iran was the fourth-largest producer among the Organisation of the Petroleum Exporting Countries (OPEC) at 2.75 million barrels per day (bpd) though exports have shrunk to about 1 million bpd since sanctions were reimposed in November.
The US put the sanctions back on Iranian oil exports after President Donald Trump unilaterally pulled out of a 2015 nuclear accord between Iran and six world powers.
Washington, however, granted Iran’s eight main buyers of oil, mostly in Asia, waivers to the sanctions which allowed them limited purchases for six months.
Analysts criticised the end to the exemptions, which would hit Asian buyers the hardest.
“This is not a good policy for Trump,” said Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corporation (JOGMEC), adding that “concerns over tightening global oil supply and lower excess production capacity are expected to bolster oil prices higher.”
He added that Brent prices are likely to rise toward $86.29 a barrel, the highest price it reached in 2018, while WTI may climb to $76.41.
Iran’s biggest oil customers are China and India, who have both been lobbying for extensions to sanction waivers.
South Korea is a major buyer of Iranian condensate, an ultra-light form of crude oil on which its refining and petrochemical industry relies heavily.
Removing the sanctions exemptions would reduce oil supply from a market that is already tight because of US sanctions against Iran and fellow OPEC-member Venezuela.
Additionally, OPEC, along with other global oil producers, have already imposed supply cuts since the start of the year aimed at tightening global oil markets and propping up prices.
As a result, Brent prices have risen by more than a third this year, while WTI has climbed more than 40 per cent over the same period.
JOGMEC’s Nogami said OPEC’s leading producers “Saudi (Arabia), the United Arab Emirates and Kuwait need to boost output to cover the shortfall.”