OPEC Chief issues warning on abandoning Iran deal

The secretary general of OPEC has warned that a decision by President Donald Trump to abandon the Iran nuclear deal would harm the global economy.

Posted: May 8, 2018 7:54 PM
Updated: May 8, 2018 7:58 PM

President Trump chose a dicey time to crack down on Iran, the world's fifth-biggest oil producer.

Global oil supplies were already getting tight before Trump vowed on Tuesday to exit the Iran nuclear deal and impose "powerful" sanctions on the OPEC nation.

Energy industry insiders say Trump's tough stance on Iran will probably keep oil and gasoline prices higher than they would otherwise be.

Iran ramped up its oil production by 1 million barrels per day after sanctions were lifted in early 2016. At least some of that oil will now be pulled from the market — at a time when oil prices are already rising because of production cuts by OPEC and Russia as well as instability in Venezuela.

Dan Eberhart, CEO of oilfield services company Canary LLC, drew a direct connection: "Withdrawing from the Iran nuclear deal will support higher oil prices."

Trump telegraphed the move, and oil prices shot up in recent weeks as traders anticipated it. Crude topped $70 a barrel this week for the first time in nearly four years. Hours before Trump's announcement, federal government forecasters raised their estimate for 2018 oil prices by 10.5% to an average of $65.58 a barrel.

Crude oil prices fell more than 1% on Tuesday, though they cut their losses after Trump confirmed that he will withdraw from the Iran deal.

Gasoline prices, which generally follow oil prices, have jumped to a national average of $2.81 a gallon, according to AAA. A gallon of gas went for $2.34 a year ago. The typical family will spend about $200 more this summer driving season, according to the Oil Price Information Service.

"It will be more painful for motorists than the past two years — but nothing close to 2011 to 2014 when it was $3.40 to $3.60 a gallon," said Tom Kloza, global head of energy analysis at OPIS.

Related: Oil prices swing wildly after Iran news

No one knows exactly how high prices will go. That will be determined by a range of factors, including how much Iranian crude is restricted by the sanctions and whether other major producers — such as the United States — fill the gap.

Another major question: Will tensions in the Middle East rise even further now that the United States is leaving the Iran deal? Heightened geopolitical fears in the Middle East often raise prices.

Several US military officials told CNN that there are increasing concerns Iran is on the cusp of an attack against Israel. It's not clear when an attack could come, nor what form it could take.

"The three or four-year period of quiet in terms of geopolitics impacting oil markets is over," said Canary's Eberhart.

Iran produced about 3.8 million barrels of oil per day in April, according to the latest S&P Global Platts OPEC survey. That's up from 2.9 million barrels per day in January 2016, when the nuclear deal took effect.

Just how much of Iran's growth in oil production is at risk — and when it could decline — is uncertain. The Treasury Department said on Tuesday that sanctions targeting Iran's oil trade and energy industry will come with a six-month lag.

Most analysts believe that at least some nations will ignore the new American sanctions and continue buying Iranian crude. China, Iran's largest customer, may be especially reluctant to cut Iran off because of the trade tensions between Beijing and Washington.

"Short of war, the only way Iran's crude sales could be disrupted is if European and certain Asian buyers revert back to their pre-2015 embargo policy — and there is virtually zero chance of that," Raymond James energy analyst Pavel Molchanov said in email.

Related: America's biggest oilfield is running out of pipeline

Snapping sanctions back on Iran will have an immediate impact on less than 200,000 barrels per day of Iranian oil, according to analysts surveyed by S&P Global Platts. That figure rises to less than 500,000 barrels per day after six months.

That's still a sizable amount of oil, especially considering the strong demand around the world.

Other major producers could fill the hole left by Iran.

Saudi Arabia, for instance, has the ability to crank up output. Yet analysts say Saudi Arabia would like to keep prices rising ahead of the IPO of its state-owned oil giant Saudi Aramco.

Production in the United States is surging thanks to the shale revolution. In fact, the Energy Information Administration lifted its 2019 domestic output forecast on Tuesday by nearly 4% to a record 11.9 million barrels per day.

"It's quite possible that surging US shale production could easily fill the gap left by Iran," Eberhart said.

One catch: Output is surging so much in the Permian Basin, America's biggest oilfield, that pipelines can't keep up. New pipelines are in the works, but won't be ready until later next year.

Indiana Coronavirus Cases

(Widget updates once daily at 8 p.m. ET)

Confirmed Cases: 33558

Reported Deaths: 2110
CountyConfirmedDeaths
Marion9616571
Lake3538185
Cass15897
Allen145168
St. Joseph124834
Elkhart116328
Hendricks116171
Hamilton115693
Johnson1093108
Madison58559
Porter51627
Bartholomew50034
Clark49241
LaPorte42423
Howard39526
Tippecanoe3903
Jackson3791
Delaware37736
Shelby36822
Hancock32728
Floyd31839
Boone30935
Morgan27824
Vanderburgh2652
Montgomery23517
White2318
Decatur22431
Clinton2231
Noble21121
Grant20621
Harrison19221
Dubois1923
Henry16910
Greene16824
Monroe16612
Warrick16628
Dearborn16621
Vigo1648
Lawrence15423
Miami1411
Putnam1367
Jennings1304
Orange12522
Scott1193
Kosciusko1111
Franklin1098
Ripley1086
Carroll922
Marshall901
Daviess8516
Steuben812
Newton7710
Wayne776
Fayette767
Wabash762
LaGrange712
Jasper651
Washington521
Jay500
Fulton481
Clay471
Rush462
Randolph463
Pulaski460
Jefferson431
Whitley393
Starke363
Sullivan341
Owen341
Brown331
DeKalb331
Perry310
Benton300
Knox290
Wells280
Huntington272
Tipton251
Crawford240
Blackford242
Fountain202
Switzerland200
Spencer191
Parke170
Posey160
Gibson142
Adams131
Ohio130
Warren121
Martin110
Vermillion100
Union80
Pike60
Unassigned0164

Illinois Coronavirus Cases

(Widget updates once daily at 7 p.m. CT)

Confirmed Cases: 117455

Reported Deaths: 5270
CountyConfirmedDeaths
Cook762663570
Lake8063287
DuPage7543362
Kane6188170
Will5442269
Winnebago215654
McHenry151471
St. Clair109179
Kankakee87144
Kendall76919
Rock Island64624
Champaign6177
Madison56558
Boone42817
DeKalb3924
Sangamon34629
Jackson26810
Randolph2674
McLean21713
Peoria2128
Ogle2023
Stephenson1992
Macon19519
Clinton18117
Union1519
LaSalle14713
Whiteside13512
Iroquois1314
Coles12514
Unassigned1250
Out of IL1191
Warren1130
Jefferson10116
Knox970
Grundy952
Monroe9411
McDonough878
Lee791
Cass710
Tazewell714
Henry680
Williamson642
Pulaski510
Marion500
Jasper457
Macoupin452
Adams441
Perry420
Montgomery391
Vermilion391
Morgan351
Christian334
Jo Daviess320
Livingston322
Douglas260
Menard210
Fayette203
Ford201
Jersey201
Woodford192
Mason180
Washington180
Mercer170
Hancock160
Shelby161
Bureau151
Carroll142
Bond121
Franklin120
Piatt120
Schuyler120
Clark110
Crawford110
Fulton110
Moultrie110
Brown100
Cumberland100
Logan100
Wayne91
Alexander80
Henderson80
Effingham71
Johnson70
Massac70
Saline70
Greene50
Marshall50
De Witt40
Lawrence40
Richland30
Stark30
Clay20
Edwards20
Gallatin20
Hamilton20
Wabash20
White20
Calhoun10
Edgar10
Hardin10
Pike10
Pope10
Putnam10
Terre Haute
Clear
72° wxIcon
Hi: 74° Lo: 53°
Feels Like: 72°
Robinson
Clear
71° wxIcon
Hi: 74° Lo: 53°
Feels Like: 71°
Indianapolis
Scattered Clouds
70° wxIcon
Hi: 72° Lo: 50°
Feels Like: 70°
Rockville
Broken Clouds
66° wxIcon
Hi: 73° Lo: 51°
Feels Like: 66°
Casey
Few Clouds
71° wxIcon
Hi: 74° Lo: 53°
Feels Like: 71°
Brazil
Clear
72° wxIcon
Hi: 73° Lo: 51°
Feels Like: 72°
Marshall
Clear
72° wxIcon
Hi: 73° Lo: 53°
Feels Like: 72°
A wonderful Saturday with sunshine expected!
WTHI Planner
WTHI Temps
WTHI Radar

WTHI Events