Published: Mon, May 14, 2018
Economy | By Shawn Conner

Gas Prices Go Up Following Trump Decision On Nuclear Deal

Gas Prices Go Up Following Trump Decision On Nuclear Deal

Continuing trades with Iran could potentially sour relations between China and the USA, which has been embracing increasingly protectionist trade policies under President Donald Trump.

Even before the landmark 2015 Iran nuclear deal, the world's second-biggest economy has been procuring heavy volumes of polyethylene (PE) and methanol, as well as crude, from Iran.

Iran ramped up its oil production by 1 million barrels per day after sanctions were lifted in early 2016. The diktat that countries should cut down their oil imports from Iran by November 6 this year, if implemented, will further add to the price at Brent scale and to the import bills of countries like India.

Trump telegraphed the move, and oil prices shot up in recent weeks as traders anticipated it. "They worked last time".

While crude oil prices have rallied over the past 12 months, energy stocks have basically gone nowhere, which helped their gains on Wednesday, Arone said.

The price of gas is nowhere near $4 a gallon like in 2008 or even $3.50 in 2014.

USA pressure to decrease Iranian oil purchases puts South Korea in an especially tricky position while it is trying to convey to North Korea that it is serious about committing to a denuclearization deal.

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"It will be more painful for motorists than the past two years - but nothing close to 2011 to 2014 when it was $3.40 to $3.60 a gallon", said Tom Kloza, global head of energy analysis at OPIS.

Oil prices have climbed to a three-year high as the market prepares for Iranian exports to fall.

OIL: Prices of oil fell sharply before Trump's announcement but rebounded, with benchmark US crude oil jumping $1.58 to $70.64 per barrel in electronic trading on the New York Mercantile Exchange.

Last year, Iraq with 45.1 MT oil supplies in the last fiscal replaced Saudi (38.9 MT) as biggest supplier of crude oil. In a statement late Tuesday, the Saudi energy ministry said was "committed to supporting the stability of oil markets". Heightened geopolitical fears in the Middle East often raise prices. "But if increases to $70 plus we could see an increase up to the $3 mark". It's not yet clear what path Europe will take this time.

Mnuchin declined to spell out what the administration would consider as a "significant reduction" in purchases of Iranian oil.

Zanganeh said foreign investment was needed to develop Iran's its oil industry, but that it could survive even if foreigners chose to stay away for fear of USA penalties. If India doesn't abide by the United States sanctions, Iran will be close second this year.

Indian demand for Iranian crude is rising steeply as both Indian state-owned and private refiners are buying more due to Iran offering the country some freight discounts.

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Britain, France and Germany have pledged to remain in the deal, while China's special envoy for the Middle East, Gong Xiaosheng, is urging all parties to adhere to the deal and solve the dispute through dialogue.

Snapping sanctions back on Iran will have an immediate impact on less than 200,000 barrels per day of Iranian oil, according to analysts surveyed by S&P Global Platts.

That's still a sizable amount of oil, especially considering the strong demand around the world. For one, China can switch to other suppliers to replace Iran quite easily, particularly Russian Federation.

Japan's Foreign Minister Taro Kono said on Wednesday that his country supported the agreement, which "helps to strengthen worldwide non-proliferation and the stability in the Middle East".

The United States may be able to compensate as well. In fact, the Energy Information Administration lifted its 2019 domestic output forecast on Tuesday by almost 4% to a record 11.9 million barrels per day.

"It's extremely difficult-if not impossible-to imagine how you can enter into a new negotiating phase with the starting point of dismantling what you have achieved after 12 years of hard negotiations", Ms. Mogherini said Friday.

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