U.S. Strategy With Iran and OPEC to Push Oil Above $100
By Sven Ridley-Wordich
26 Oct 2007 at 10:02 AM GMT-04:00
AMSTERDAM (ResourceInvestor.com) -- Crude oil market analysts are currently keeping an eye on the global reactions regarding the U.S. sanctions put on Iran. The Bush Administration has kept its promise that the Tehran regime will be confronted by increased financial and economic sanctions if it does not comply with international requests to end its nuclear program.
First reactions coming from Tehran have been defiant, showing an unwillingness to comply with the Western request - leaving no other room for a full confrontation. Three Iranian banks, Bank Melli, Bank Melat and Bank Saderat, the main Iranian institutions working internationally, and Iran's Islamic Revolution Guards Corps, which is the military-industrial complex of the regime, have been hit by the sanctions.
U.S. sanctions have been put in place after Russia and China refused to support a much-wanted UN Security Council sanctions regime. Not only will Iran be feeling the effects of the new sanctions, which will block international assets and financial transactions for all parties, but other countries will as well. As part of the new sanctions regime, companies such as Shell [NYSE:RDS-A], Total [NYSE:TOT], ABN Amro [NYSE:ABN] or HSBC [NYSE:HBC] could be sued by U.S. courts if they continue their operations in Iran. Some analysts expect some international condemnation of the unilateral approach taken by Washington, but already unofficial statements coming from several European countries, such as the UK and the Netherlands, have shown that a broad support is building up for the new regime.
Iran’s overall oil and gas operations will be most hit by the new sanctions, as financial transactions or investments will be prohibited. If non-American players are not complying with the Bush doctrine, while also holding assets in the U.S. - as most do - financial sanctions will be put on them. In how far the results will be as expected, is still unclear, but Iran is increasingly becoming an international paria state. The overall situation is increasingly worrisome, as military analysts have stated that U.S. forces in the Persian Gulf are currently planning to hold military contingency operations in the region. Most analysts assess these developments as the next step towards full military operations by the U.S. (and possibly others) against Iran. Further destabilization of the region is to be expected, putting increased pressure on the already unstable oil markets.
At the same time, OPEC has repeated its statements that no real production volume increases should be expected in the coming weeks or months. In a statement given by the Secretariat of OPEC, the organization has reported to the press that its members are not involved in any discussions on a further increase in oil output beyond the 500,000 bpd due in the market in November. OPEC’s Secretary General Abdalla Al Badri reiterated, "I have not heard about another 500,000 barrels increase." The latter policy statements showed an increased commitment of OPEC to keep the oil market under pressure.
In the coming months, crude oil prices will be heading above $100 per barrel if all speculations are coming true about increased global demand, lower stocks worldwide and a Middle East conflict with Iran. If OPEC next month at its Saudi Arabia summit will not present a 1.5 million to 2 million bpd production increase, the market should be expecting record price levels without any doubt. Al Badri’s comments have come after the U.S. Secretary of Energy Samuel Bodman urged the oil cartel to increase its production volumes to counter a too-tight global supply and demand market. Even though OPEC has repeatedly claimed not to have set its own target price for crude oil, analysts are increasingly indicating that the oil cartel has set a minimum price level of $60 per barrel, while the upper range is totally in the open. Some hardliners in OPEC, including Iran and Venezuela, are not at all unhappy with the current price developments.
Bodman’s worries about a too-tight supply and demand market situation were supported by new stock level figures of the U.S. recently. Washington reported that inventories of crude oil and gasoline have again fallen last week. Bodman’s own Energy Information Administration Department, part of the Department of Energy, stated that for the week ended 19 October, crude oil inventories have fallen by 5.3 million barrels to 316.6 million barrels, which is 5.9% below year-ago levels. The latter was again a shock to financial analysts who had indicated that crude stocks should have grown by 300,000 barrels. At the same time, the EIA reported that U.S. refineries have also lowered their production by 0.2%, running at 87.1% of their total capacity on average. These figures contrasted market expectations of a 0.3% growth.
The new situation leaves no room to analysis than to expect that last week’s prediction of Bush’s Big Bang will be a fact of life, even before mid-2008. Crude oil will be reeling, but profits could still be made. Risk-takers and operators will partly be able to reap the rewards of the almost-sure crude oil price increase in the coming months. |
