Oil hits six-month high as U.S. ends Iran import waivers
Crude leapt to its highest level in almost six months after the Trump administration said it wouldn’t renew Iran oil waivers for China, India and other countries once they expire in May.
Futures in London traded near $74 (U.S.) a barrel after jumping as much as 3.3 per cent and reaching the highest since early November in anticipation of the statement on Monday.
U.S. Secretary of State Mike Pompeo said the Trump administration will no longer grant exemptions on waivers, and the U.S., Saudi Arabia and the United Arab Emirates will ensure an “appropriate supply” of oil. The current set of waivers — issued to China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey — expires May 2.
Benchmark Brent has gained more than 30 per cent this year as the Organization of Petroleum Exporting Countries and its allies including Russia continued their commitment to curb output in a bid to avert a glut. U.S. sanctions on Iran and Venezuela, along with unexpected losses in Libya, have squeezed supplies further.
Saudi Energy Minister Khalid al-Falih said his nation will co-ordinate with fellow oil producers to ensure adequate supplies are available to consumers while ensuring the global oil market “does not go out of balance.”
Brent for June settlement climbed $1.90 to $73.87 a barrel at 10:41 a.m. in New York on the London-based ICE Futures Europe exchange. It earlier rose to $74.31, the highest intraday level since Nov. 1.
West Texas Intermediate for May delivery, which expired Monday, advanced $1.48 to $65.48 a barrel on the New York Mercantile Exchange, while the more-active June contract rose by $1.53 to $65.60. WTI traded at a discount of $8.26 to Brent for the same month.
Crude oil prices in Western Canada also gained Monday, rising $1.85 midday to $55.68, with the differential between Western Canadian Select bitumen-blend heavy oil and New York-traded WTI prices narrowing to $10.25. The WCS-WTI discount peaked at more than $52 a barrel in October 2018, a level Alberta estimated was costing the Canadian economy more than $80 million per day.
And while strengthening oil prices since the start of the year have improved the outlook for Canada’s oil sector and helped oil firms generate free cash flow, “there is going to be a lag effect,” before they are well positioned to hire engineers and boost output, said Thomas Matthews, a research analyst at AltaCorp Capital Inc. in Calgary.
“I don’t see that happening before the end of the year,” he said, adding that oil companies need to reduce debt built up during periods of low crude prices.
Michael Tran, managing director of global energy strategy at RBC Capital Markets, said materially higher crude prices boosted oil producers’ financial results in the first quarter and have created near term economic upside for the Canadian economy, with RBC anticipating elevated oil prices through the year.
But he said a lack of pipeline capacity in Canada means oil companies here “are missing the boat” on rising demand for the kind of heavy oil produced in Alberta’s oilsands that is used in growing Asian economies to support broad infrastructure development.
Oil company stocks, meanwhile, also benefited from rising crude prices, with Pompeo noting that surging American production will help replace any lost Iranian supply. The S&P 500 Energy Index rose as much as 1.2 per cent, with gains led by U.S.-based drillers Marathon Oil Corp. and Diamondback Energy Inc.
Gasoline futures rose as much as 3.2 per cent, reaching the highest intraday price since early October.
The decision to not extend waivers comes after National Security Adviser John Bolton and his allies argued that U.S. promises to get tough on the Persian Gulf state were meaningless with the exemptions still in place.
The total elimination was a stricter move than many investors had expected, said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. The ultimate impact likely depends on how hard the Saudis work to fill the gap, he said — and how President Donald Trump reacts if the crackdown starts to affect U.S. consumers.
“These last few days, we’ve seen plenty of stories about rising gasoline prices, just in time for the summer driving season,” Lynch said. “What everybody is going to be pointing to is Trump tightening sanctions on Iran.”
With a file from Star staff