U.S. Sanctions on Iran Recommence
Published on: 08/14/18 10:59 AM
Category: Uncategorised
We have reached the point at which the United States begins to impose its first round of sanctions on Iran. The U.S. lifted sanctions some 90 days ago after it withdrew from nuclear agreement talks last May. Most of these sanctions relate to dollar banknotes, sovereign debt, Iranian currency transactions, and trade in precious metals. We can expect another round of sanctions related to oil and energy sales in November.
The price of oil appears to be firmer following these sanctions. Tangible gains from the sanctions remain marginal for now, however. China is Iran’s largest oil customer and thus has a huge impact on what gains we might see in the future. Although the U.S. strongly advised China to reduce their purchase of Iranian oil to zero no later than November, China maintains an agreement with Iran to continue buying oil at their current levels. In addition, the EU has activated a blocking statute in an effort to protect several European companies that conduct business with Iran.
The loss of Iranian oil will certainly be a key factor in upcoming oil prices. Experts are wondering just how much Iranian oil we will lose before the second round of sanctions goes into effect. Some of these experts estimate that as much as 1.5mbpd will drop from the market in the meantime. Headline risk remains high thanks to these reports even as countries try to act in accordance with guidance from the U.S. Even India, Iran’s second-largest buyer, asked its refiners to make preparations to reduce their Iranian oil imports to zero by November.
Just over 66 percent of traders are net-long with a 1.95 to 1 ratio of long to short traders. These traders have been net-long since mid-July when US crude prices traded close to 7280.5. We’ve seen a 5.8 percent decrease since that time. Net-long traders are up from last week by over 10 percent and sitting at 10.4 percent as of this morning. Net-short traders are 4.2 percent higher than yesterday but 19.9 percent lower than they were at this time last week.
If one takes a contrarian view to the current sentiments in the market, this net-long trend would suggest that crude prices for the US might continue to drop as we move toward November. Although the current positioning is not as net-long as it was only yesterday, it is still more net-long than it was a week ago. These recent changes, the current sentiments surrounding them, and the bias in the market all serve to further mix our perceptions regarding crude oil trades in the near future.