The Strait of Hormuz. (ddp)

The US administration has indicated that Saudi Arabia and the United Arab Emirates have committed to provide sufficient supply to the oil markets. Saudi Arabia's oil minister Khalid al-Falih said in a statement that the Kingdom will coordinate with fellow oil producers to ensure adequate supplies are available to consumers, while ensuring the global market remains balanced.

“China has already indicated its opposition to the US implementation of unilateral sanctions, so it is probably unlikely to see Iranian exports to fall to zero. However, with South Korea, Japan and eventually India likely to cut their imports to zero, Iran’s oil exports will soon fall below 1mbpd. Considering the experience of last year, we expect Saudi Arabia and its allies to cautiously react to customers need rather than preemptively ramp up production,” says Chief Investment Office (CIO) analyst Giovanni Staunovo. “Thanks to over-compliance to the production cut deal, the Saudis and its allies still have buffers to offset a decline in Iranian exports. As such, we expect the OPEC+ compliance rate to decline again from May onwards. However, amid seasonally higher oil demand into the summer, the oil market is likely to be very sensitive to any further disruptions in Libya, Venezuela or Nigeria.”

Meanwhile, Iran has threatened to close the Strait of Hormuz, a waterway vital for global oil shipments, a senior military official said on Monday in what appears to be a response to the U.S. plan to end waivers on Iranian oil exports. The Strait of Hormuz is a narrow waterway carrying a fifth of the world’s traded oil. Iranian officials have previously threatened to block the strait in retaliation for sanctions targeting the country’s nuclear program. The U.S. has said it would move to stop any Iranian attempt to block the waterway.

“Saudi Aramco is moving fast to expand its east-west crude pipeline linking Saudi Arabia's oil-rich Eastern Province with the Red Sea, adding more capacity to an alternative transport route for the country's crude oil without having to travel through the strategic Strait of Hormuz waterway,” points out Staunovo.

Crude oil rose about 3% mid-day, Eastern Time (ET), to nearly $74.00 a barrel, after the US announced that it would not reissue the waivers. Amid seasonally improving oil demand, CIO expects the market to further tighten and continue to expect Brent to trade in the USD 70–80/bbl range this quarter.

Read the original report: Crude oil: US ends sanction waivers on Iranian oil, published 22 April, 2019.