Oil jumps over 3% as US prepares to end Iran sanction waivers after May 2 expiry

Gas flares from an oil production platform at the Soroush oil fields in the Persian Gulf, south of the capital Teheran, on July 25, 2005.
Gas flares from an oil production platform at the Soroush oil fields in the Persian Gulf, south of the capital Teheran, on July 25, 2005.PHOTO: REUTERS

SINGAPORE (BLOOMBERG) - Oil rose to the highest level in almost six months as the US government was said to eliminate sanction waivers that allowed buyers to import Iranian crude.

Futures in London jumped as much as 3.3 per cent to the highest intraday price since early November. Secretary of State Mike Pompeo will deliver the decision on Monday (April 22) that no waivers from sanctions will be renewed to importers of Iranian oil, according to four people familiar with the matter. The US will also announce offsets through commitments from other suppliers such as Saudi Arabia and the United Arab Emirates.

Oil has rallied almost 40 per cent this year as the Organization of Petroleum Exporting Countries and its allies including Russia continued their commitment to curb output in a bid to avert a glut. US sanctions on Iran and Venezuela, along with unexpected losses in Libya, have further squeezed supplies. Signs of slowing production growth in the US and disruption at a key Nigerian pipeline are also bolstering bullish sentiment.

"Prices are rallying as expectations are growing that global supply will be immediately curtailed with the US said to be scrapping its Iran oil waivers," said Kim Kwangrae, a commodities analyst at Samsung Futures Inc in Seoul. "That's coming on top of the dialing back of US explorers."

Brent for June settlement climbed as much as US$2.34 to US$74.31 a barrel on the London-based ICE Futures Europe exchange and was at US$73.75 a barrel at 11:50am in Singapore. The contract rose 35 cents on Thursday, capping a fourth weekly advance. No futures were traded in London or New York on Friday due to the Good Friday holiday.

West Texas Intermediate for May delivery, which will expire Monday, rose as much as US$1.87 to US$65.87 a barrel on the New York Mercantile Exchange, while the more-active June contract gained 3 per cent to US$65.99. WTI was at a discount of US$8.24 to Brent for the same month.

The Trump administration's decision to not extend waivers comes after National Security Advisor John Bolton and his allies argued that the US promises to get tough on the Persian Gulf state were meaningless with the exemptions still in place. The current set of waivers - issued to China, India, Japan, South Korea, Italy, Greece, Turkey and Taiwan - will expire in less than two weeks.

South Korea's Hanwha Total Petrochemical Co, a buyer of Iranian ultra-light oil, has already been buying and testing alternative oil cargoes from regions such as Africa and Australia, said a company spokesman who asked not to be identified because of internal policy. The company is currently waiting for an official response from the government on the waivers.

In the US, working oil rigs fell by eight last week to 825 as explorers brought down activity in American fields for the first time in April amid investor demand for spending discipline. Drillers in the Permian Basin idled one rig, while rigs from the Eagle Ford remained unchanged.

Meanwhile, Samsung Futures' Kim said that further gains in oil prices would hinge on Russia's stance on the output-reduction pact. Energy Minister Alexander Novak said last week that it's too early to talk about possible options for the group with regards to the future of the cuts. He said there would likely be discussions about whether Opec and its allies would extend production curbs at their meeting in Jeddah next month.