The price of oil is steady in today’s trading session hovering around $70 a barrel having risen significantly over the last week on the back of US President Donald Trump’s decision to reintroduce sanctions on Iran.
How this will affect the oil price as the year unfolds remains to be seen but some are already speculating that it will be limited as not all countries are on board and other players in the market will be ready to step in and fill the hole left in the market due to the sanctions.
“The two things that would shift the market in a bearish direction is if the Saudis or Kuwaitis say we are going to offset lost Iranian supply, or if major buyers in Europe say they will ignore the decision and continue buying” Iranian crude, said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.
Another reason the oil price may not move much higher as the sanctions on Iran will not be enough to offset the surge in production from US shale drillers. The US added 10 rigs to their overall count last week which marks the highest level in over 3 years and all this action may not be factored into current prices.
“The rig count moves tend to lag oil & gas price inflections by 3-4 months, suggesting that the current demand run-rate does not fully reflect the recent crude price rally” said analysts from Morgan Stanley
“This implies that we could see another 70+ rigs added market-wide by year end.” They added.
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