Thursday, March 29, 2012

Will Low Iranian Oil Supplies Trigger Higher Prices?

Will Low Iranian Oil Supplies Trigger Higher Prices? That’s been one of the big questions as an embargo on Iranian Oil from EU nations is soon set to take place.  The embargo comes as Iran has already unilateraly decided not to ship oil to those countries.  Overall, Iranian supplies have dropped by 14%.  So far, the drop in supply has been made up by other oil producing countries. However, as talk of more sanction against Iran has heated up, Oil traders expect Iranian output to continue to decrease with the potential of higher prices.

Recently, prices of a barrel of oil have been trading above $100 with any drops below that figure quickly seeing buying interest.  As such, with demand around $100 staying strong, there is potential for a move to $120 a barrel if traders begin to sense that supplies are in fact decreasing.

From the WSJ on the matter:

Iran's oil exports appear to have dropped this month as buyers prepare for tough new sanctions, market observers say, and shipments are likely to shrink further if President Barack Obama determines by Friday, as expected, that markets can adjust to fewer barrels of Iranian oil.
By the end of March, with three months until a European Union embargo on Iranian oil takes effect, Iran's exports are expected to fall by about 300,000 barrels a day from last month, to 1.9 million barrels daily, a nearly 14% drop, according to Swiss oil-shipping specialist Petro-Logistics SA.
More aggressive measures are in the pipeline, U.S. congressional leaders and the EU say. Sanctions intended to bring Iran's nuclear program to heel could eventually leave half of Iran's oil output cut off from international markets, according to analysts and officials.
But Iran could hold off on any nuclear compromise, betting that sanctions will push oil prices so high that the country's income will hold steady—while fragile Western economies wrestle with higher energy costs.   Read More

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