It was a busy week for oil traders, with prices moving in a $4.25 range of $71.89 per barrel down to $67.63 per barrel as the market digested the news that U.S. President Donald Trump decided to unilaterally pull out of the Iran nuclear deal and reimplement economic sanctions. The exchange of airstrikes between Iranian-backed rebels in Syria and Israel also added to the market tension.
Traders are concerned that renewed sanctions could lead to a loss of crude oil exports from OPEC’s third largest producer. The return of sanctions could result in a reduction of oil exports from Iran by 200,000 barrels per day (b/d) to 500,000 b/d by the end of the year, and another 500,000 b/d to 700,000 b/d in 2019, according to S&P Global Platts.
U.S. sanctions are set to take effect in November, giving market participants some time to source new supplies. China is the most significant single buyer of oil from Iran at about 700,000 b/d. South Korea comes in second at a little over 250,000 b/d.
Disruption in Iran could force OPEC to adjust up production levels earlier than it had expected and could prompt U.S. shale drillers in West Texas to drill more. Despite these efforts to fill in for lost supply, analysts at Bank of America still expect oil to reach $100 per barrel in 2019.