Why are oil prices soaring as US exits Iran nuclear deal?

Why are oil prices soaring?

Donald Trump’s withdrawal from the Iran nuclear deal has raised concerns that the global supply of oil will be squeezed, pushing up the price of Brent Crude on Wednesday by almost 3% a barrel to $76.95.

What does the nuclear deal have to do with the oil price?

When Iran pledged to limit its nuclear ambitions to civil energy production under the deal with the P5+1 group of world powers – the US, UK, France, China, Russia and Germany – sanctions were lifted on its oil exports, giving a significant boost to global oil supplies.

Oil price chart
Oil price chart

How big is Iran’s contribution to global supplies?

Iran is the third largest producer in the Organisation of the Petroleum Exporting Countries (Opec), which makes it a heavy hitter in the production of oil. It produces 2.5m barrels a day, equal to about 3% of global demand. Trump’s threat to reimpose sanctions and effectively keep up to half of Iranian oil in the ground has hit the oil price since he was elected in November 2016. The price of Brent crude is now up 50% year on year.

Is Iran the only factor pushing up oil prices?

No. Opec has spent the past three years attempting to push up the price of oil following its collapse in 2014 when the price plunged from more than $115 a barrel to below $30 a barrel. That was a result of an increase in supply from Russia, Venezuela and other Opec nations desperate for cash and an important new arrival on the scene – fracking firms in the US, which had begun pumping huge quantities of oil and gas. The recent cold snap, which affected not only the UK but much of the continent and the US, also sent energy prices upwards as demand spiralled.

Has Opec been successful?

The International Energy Agency says production cuts among Opec’s 14 members and its affiliates, especially Russia, has had a significant impact on pushing up prices. The agency recently said 90% of the supply governed by the Opec cuts was holding to lower production limits. “With just under half of global oil supply subject to restraint and oil demand growing steadily, the impact … has been substantial,” it said.

How will business and consumers be affected?

Prices at the pumps have edged up from about £1 a litre for unleaded petrol in early 2016 to £1.20 a litre today. Gas prices, which tend to track the oil price, have also increased steeply. When the “beast from the east” storm was at its worst, wholesale gas prices stood at a 12-year high. Between them, oil and gas prices have been two of the main factors pushing up inflation and reducing real disposable incomes.

Source

https://www.theguardian.com/business/2018/may/09/why-are-oil-prices-soaring-as-us-exits-iran-nuclear-deal