Fears over the drop-off in Iranian oil supply due to tough sanctions imposed by the United States have pushed oil prices higher year to date, even as actual worldwide production has remained stable, energy analysts said Thursday. Since Congress approved additional sanctions in mid-December aimed at curtailing Iran’s oil and gas sales, Brent crude oil prices have risen around 16%, and WTI crude prices are up close to 8%, according the U.S Energy Information Administration. Iran is OPEC’s second largest oil producer and is currently the third largest oil exporter in the world, so any serious disruptions will impact prices. The European Union’s embargo against Iran’s oil imports will take effect on July 1, but already many of its customers are beginning to curtail oil imports. So far though, actual oil production has not taken much of a hit. U.S. crude inventories rose at their fastest pace in nearly four years this past week, indicating a rather large surplus, at least within the largest energy consumer in the world. Tim Evans, an energy analyst at Citi Futures Perspective old MNI in a phone interview, “In the current markets we have this fear that production will be lost but actual production is rolling along smoothly.” “Total OPEC production is rising. The tightness is all in peoples’ heads; it’s in anticipation that production could drop sometime in the future.” As emerging markets have slowed somewhat and U.S. demand remains subdued, the rise in prices is largely due to geopolitical instability, most notably in Iran. Lou Pugliaresi, the president of the Energy Policy Research Foundation said at a press lunch Thursday, “If oil is 30 dollars higher than it should be, a third of that is probably due to Iran, but it’s extremely tough to document that.” “There’s alot of variance around Iran. Based on the data the sanctions are working in that they have cut down Iranian oil sales.” Still, he noted, “What buyers and sellers are telling us is that the long term looks much better in terms of prices. [They] view the disruption as temporary.” Citi’s Evans sees the Iranian sanctions as having an even stronger effect on prices, saying, “It’s easiest to see the impact of the sanctions and the pending embargo on oil prices, and in my view there is a $25 to $30 a barrel risk premium.” “This has really become a one issue market. Either we get the supply disruption from Iran and prices go up or we don’t get the disruption and prices come back down,” Evans said. “My general opinion is that we basically muddle through, where there is no large disruption but a solution is not quickly found.”
