What to Watch

Iranian Oil Squeeze Could Upset OPEC Agreement on Production Cuts

Investors are raising concerns that Washington’s decision to exit the 2015 Iran nuclear deal could destabilize the effort by major oil producers to eliminate global supply and balance the market for crude, reports the Wall Street Journal’s Georgi Kantchev.

Iran is a member of the Organization of the Petroleum Exporting Countries, which together with its external allies including Russia has been spearheading an effort since 2016 to reduce global output by a about 2%.

The oil cartel and its partners are set to meet in June to decide whether they’ll extend the deal beyond this year.

If U.S. sanctions take Iranian oil off the market, leading to further price gains, some signatories may declare their mission accomplished.

“If the reimposition of U.S. sanctions on Iran leads to a reduction in Iran’s oil output and exports, OPEC and its allies could exit the deal at the end of the year or even sooner in order to prevent a supply shortage in the oil market,” said Thomas Pugh, commodities economist at Capital Economics.

Meanwhile, oil prices hit 3½-year highs this week amid expectations that renewed U.S. economic sanctions will squeeze Iran’s oil supply.

Brent crude, the global benchmark, was down 0.05% at $77.42 a barrel on London’s Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 0.11% at $71.44 a barrel.

Energy News

Blackstone Promotes New Energy Fund as Oil Prices Rise

The world’s biggest listed private-equity firm wants to raise $4.5 billion for its third energy fund to capitalize on rebounding oil prices and tighter financial discipline among crude producers.

Coal Traders in North Korea Are Offering Cheap Coal to Chinese Traders

North Korean coal traders have been hard hit by United Nations sanctions against Pyongyang. Now they are offering cheap coal to Chinese buyers while hoping that the latest round of negotiations will lead to an easing of the trade relations between North Korea and Beijing.

“The Russians have been wanting to produce for a long time. Now they could view the Iran issue as an excuse to end or push to relax the deal.”

– Tamas Varga, an analyst at brokerage PVM Oil Associates

 U.S. Officials Face Uphill Battle to Enforce Sanctions on Iran’s Oil

 U.S. President Donald Trump has charged a State Department office withenforcing an oil embargo against Iran. The Bureau of Energy Resources has a difficult task ahead as the European Union objects to the U.S. exiting the Iran nuclear deal and governments there are reviewing ways to block the sanctions, Reuters reports.

WSJ Energy In-Depth

Heart of America’s Oil Boom Can’t Fetch Good Prices for Its Crude

In the epicenter of America’s drilling boom, crude is going for less than $60 a barrel because oil output there has overwhelmed pipelines that connect the Texas desert to markets along the Gulf Coast and abroad, write Alison Sider and Ryan Dezember. Worker shortages are also contributing to the lower prices.

Analysts and investors worry such logjams will threaten the profits of Permian producers and slow crude output when the global oil market is already facing limited supplies because of disruptions from Iran and Venezuela. That would propel rising oil prices even higher.

Producers would like to get their oil to places such as Houston, where oil can be loaded onto tankers and shipped overseas. There, the same crude fetches upward of $73.

But it could be a year or more before new pipelines catch up with surging production. At the region’s current growth rates, analysts at PLG Consulting expect that close to 200 million barrels of oil will be unable to make it to market in the next 16 months.

“They’re not going to be able to get it all out,” said Taylor Robinson, president of PLG.

Big Number

149%

China’s policies designed to drive purchases of electric vehicles looked to be having an effect as overall car sales rose in the Asian country in part because of rising sales of rechargeable automobiles.

Figures from the government-backed China Association of Automobile Manufacturers show EV sales reached 81,904 in April, and 225,310 in the first four months of the year. Sales in the January-to-April period are up 149% compared with the same period in 2017.

FutureCurve

May 14: OPEC issues its monthly oil market report.

June 5-6: The London Crude Oil Summit. The speakers include Franco Magnani, CEO of Eni Trading and Shipping.

Reporter’s Notebook

The WSJ’s Dan Molinski on who could be the winner from the U.S. decision to exit the Iran deal. Could China end up being a winner in President Trump’s decision to end the Iran nuclear deal and reimpose sanctions? Oil-market analysts at Stratas Advisors says most global companies with Iran connections are likely to comply with the U.S. directive to stop doing business with Tehran, as many have big operations in the U.S. that would be at risk otherwise. But, it says, “Chinese companies stand to be the main beneficiaries, as they can easily create subsidiaries with no connection to U.S. interests to maintain operations and investments in Iran.”

WSJ reporter Neanda Salvaterra on how an OPEC member views the unraveling of the Iran deal. An official from Equatorial Guinea, an oil producing country that is also a member of OPEC, does not foresee the U.S. move to reimpose sanctions on Iran as having a big impact on the oil industry. “I don’t think it will affect us, it’s geopolitical. We are already getting more production from shale,” says Gabriel M. Obiang Lima, the minister of mines and hydrocarbons for the central African nation. “And we expect that there will be a European intervention and a resolution for all parties,” he notes while standing on the sidelines of the Africa Oil & Power Forum in London.