The oil markets surge in April due to the Middle East tension, the bombing a chemical weapon warehouse of the Assad’s Army in Syria by Western coalition, and Tehran opposition to the OPEC cutting off oil output policy. Needless to say, April is a month of the quarterly reports and the growth in transportation activity, which increases gasoline consumption. Nevertheless, this year, the effect of the Q1 reports and the seasonal rise of the gasoline consumption are strengthened by the political factors.
President D. Trump vs OPEC
Several days ago the U.S. president Donald Trump accused OPEC in ‘artificially’ raising oil prices. The president does not intend to accept the OPEC dictate in the market. To be honest, Mr. Trump did not proclaim any news. The message contained the evaluation of the cutoff deal as not sufficient arrangement to improve the oil market in general. Large oil producers made a profit at the point when the market price shrunk to $30 per barrel in January 2016. In 2016, to produce a barrel of crude oil Saudi Arabia and Iran spent $9 approximately. To get a barrel Iraq invested $10.57, Russia expended $19.21. The US shale oil production needed investment of $22.35 per barrel. According to these average cash cost per barrel published by Wall Street Journal, Riyadh, Tehran and Baghdad are looking for the extra petrodollars that they are able to gain thanks to their easy-drilling oil fields. Thus, the U.S. president sent a message: the OPEC and non-OPEC oil exporters agreement to cut oil output until the end of 2018 aimed on the pushing prices higher is considered as unacceptable manipulation in the global markets.
Iran and Russia vs OPEC
However, the other side of the rainbow is not just black and white. OPEC suffers from fighting among members. Iran suggested easing oil curbs pointing out the rise of oil production in the U.S. (the number of active rigs in the USA increased from 815 to 820 last week). The cut off deal, unacceptable from the Mr. Donald Trump’s point of view, seems to be insufficient to stabilize the oil markets in Tehran eyes. Iranians have strong connections with Russians, who had helped Tehran in trading oil in the period of sanctions until 2016. Although Iran and Russia struggle to find common ground in Syria, they are able to support partnership lobbying the easing oil curbs. Meanwhile, Saudi Aramco, the world’s biggest oil exporter, intends to trade as much as 6 million barrels per day driving away competitors. Russian and Iranian companies are the competitors.
On Tuesday, April 24, 2018, crude oil settled at $68.64 a barrel, while Brent finished the day at $73.88 a barrel, loosing 1.4% and $1.11 respectively because of the possibility of New US Sanctions Against Iran.