Oil could hit $100 a barrel in 2019: Bank of America

Sanctions likely to be re-imposed on Iran will ultimately affect Iran’s oil exports

So, what happens next?

The U.S. will re-impose all nuclear related sanctions on Iran, which could begin to disrupt oil flows from the country. However, there is a great deal of disagreement and uncertainty over how quickly and how severely the impact of USA confrontation will be.

Meanwhile, U.S. crude oil production rose to another high at 10.7 million barrels a day, according to EIA's preliminary weekly reading.

Officials said the insurance hurdle is not foreseen as of now because European nations such as the United Kingdom and France have indicated that they are sticking with the nuclear accord.

The reapplication of USA sanctions - particularly if effective - likely marks the practical end of the supply cut agreement as OPEC operates through unanimous decision-making, and Saudi and Iranian oil market interests will grow increasingly divergent. The EU has vowed to protect its companies, and could even pursue trade retaliation if the U.S. Treasury moves to penalize European companies.

With U.S. motorists getting ready to hit the highway for the summer driving season, pump prices have been moving up sharply - topping $3 a gallon in several Western states, where transportation costs typically add to the retail price of motor fuel.

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Analysts' estimates of the possible reduction in Iranian crude supplies as a result of any new US sanctions range from 200,000 bpd to 1 million bpd. The U.S. has advised other countries to "significantly reduce" their purchases of oil from Iran. Japan continues to employ a mechanism in which the government provides insurance for its shipments of Iranian oil, escaping reliance on sanctions-sensitive USA and European insurance firms. A 20 percent reduction was an unofficial rule of thumb during the Obama era. In fact, they will likely have consequences that go against the stated objectives of the Trump administration.

JCPOA provided for Iran curbing its nuclear programme in return for the lifting of financial sanctions. That's about 1 million barrels a day more than in early 2016. This is unlikely to happen this time around as the U.S. has revoked the deal unilaterally and against the will of most other countries.

Sanctions come amid an oil market that has already been tightening due to strong demand, especially in Asia, and as top exporter Saudi Arabia and top producer Russian Federation have led efforts since 2017 to withhold oil supplies to prop up prices.

Trying to ease market concerns, Saudi Arabia said on Wednesday that it would work with other producers to diminish the impact of any shortage in oil supplies. The bank lowered its forecast for Iranian output by 150,000 bpd in 2019, a volume that would be offset by higher shipments from Saudi Arabia.

Japan and South Korea will likely work to wind down Iranian crude imports to comply with US sanctions. Prices had already been rising as a strong global economy has kept demand high for gasoline and other refined products. Chinese crude imports recently hit record highs, and the country will be loath to cut imports from Iran or switch providers in the midst of a tight oil market. "However, his language today [8 May] was more hawkish than expected, emphasizing that the United States would re-impose all USA sanctions that were lifted as part of the JCPOA, not just those up for renewal on 12 May", said Nomura Global Markets Research in a note. It meant most owners weren't able to haul Iranian oil and forced some Asian buyers of the Middle East country's crude to find awkward workarounds such as state-backed cover.

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