Oil prices spiked on Monday — past highs not seen since last fall — after reports that Washington is set to announce that all buyers of Iranian oil will have to end imports, or be subject to U.S. sanctions.
U.S. West Texas Intermediate crude futures rose $1.30, or 2%, to $65.30 per barrel, after hitting $65.87, its highest level since Oct. 31, 2018. WTI had been trading sideways after hitting a 2019 high at $64.79 nearly two weeks ago.
That price spike followed a report by the Washington Post, citing two unnamed State Department officials, that U.S. Secretary of State Mike Pompeo will announce that the State Department will cease granting sanctions waivers to any country still importing Iranian crude or condensate, an ultra-light form of crude oil, after May 2.
“The sanctions (are) obviously one of the major movers, I think, which is influencing prices,” said Daryl Liew, head of portfolio management at financial services company Reyl Singapore. He also pointed to stronger-than-expected economic growth data from China last week, which could be driving demand expectations.
Brent prices have risen by more than a third this year following a collapse in the cost of crude in the final months of 2018. U.S. crude has soared 44 percent year to date.
The U.S. reimposed sanctions in November on exports of Iranian oil after U.S. President Donald Trump unilaterally pulled out of a nuclear accord struck in 2015 between Iran and world powers. Washington, however, granted eight of Iran’s biggest oil buyers exemptions that allowed them limited purchases for an additional six months.
The eight buyers are China and India — Iran’s biggest customers — as well as Japan, South Korea, Italy, Greece, Turkey and Taiwan.
Of the buyers of Iranian oil, Liew said India could suffer the most from Washington’s move.
“I think India is probably one of the key potential countries that might suffer from a higher oil price, in terms of their current account deficit, for example. And that’s going to be basically putting pressures on inflationary pressures as well,” Liew said, speaking on CNBC’s “Street Signs” on Monday.
“No doubt the Indian central bank has … turned to a more dovish stance in recent meetings. But if oil prices continue to hit higher, and inflationary pressures come back into the picture again for India especially, then the central bank probably has to reverse the dovish moves,” he concluded.
The waivers have allowed Iran to continue exporting about 1 million barrels per day, down from roughly 2.5 million bpd last year.