According to the news report by Bloomberg, the price of gas has been going up for American consumers. The national average price of the commodity has gone up to $3 per gallon at a time when the price should actually be falling. Especially since it is the time for the mid-term elections.
Normally, the seasonal trends show that at this time of the year, the price of gas starts to fall. However, this year, the price of gas is bucking that trend and going in the opposite direction.
The reason for this change in trend is simple – by reinstating sanctions on Iran, President Donald Trump has, in effect, removed 3 million barrels of crude oil per day from the markets.
The timing of these sanctions are unfortunate. OPEC and its partner oil producing countries spent the last year or so working towards zeroing out the massive oil glut in the market so that prices could stabilize and oil excesses could be used up. Just when they succeeded, the US sanctions on Iran have now created a deficit in oil supplies.
On the face of it, it looks like OPEC and its allies have managed to fill the hole left by Iran. King Mohammed bin Salman announced that the group had managed to boost crude oil supplies by 2 times the amount that had been lost due to the sanctions on Iran.
However, the reality is much grimmer. Oil producers have been struggling to make up the difference that was lost due to embargoes on Iran. According to the data that Bloomberg compiled, the crude oil output from OPEC and its partner countries has gone up by 1.3 million barrels per day from April onwards.
However, there are a few factors that need to be kept in mind that have negatively impacted that number. Frist, the Republic of Congo joined OPEC in June this year. Secondly, the other non-OPEC members’ oil production has been declining steadily, especially Mexico’s. And the biggest impact on the oil production has been Iran’s falling exports in condensates, a type of light crude oil that is extracted from gas fields.
Overall, what this means that the actual increase is just 350,000 barrels per day, rather than the 1.3 million originally announced. In June, Saudi Arabia had stated that at least 1 million barrels per day needed to be added to the global supply of crude oil to balance out the losses being suffered.
The problems are not yet over, though. Iran’s exports are down by 1.1 million barrels a day to 1.7 million barrels of crude oil per day. But Trump is pushing that number down to zero by November 4.
Even if he is not successful in pushing Iran’s oil exports to zero, another big drop in the country’s export are expected before that deadline. This is because the companies in Europe and other parts of the world that are still buying Iranian oil will stop their purchases just before Trump’s November 4 deadline.
Earlier, the expectation was that India would only cut its imports from Iran by 50%. However, now, it looks like the country is going to cut its Iranian crude oil imports to zero. Added to that, thanks to the escalation in trade tensions between the US and China, Chinese demand for crude oil from Iran has also gone down.
Thus, now, the expectation is that the drop in Iranian exports of crude oil will actually be down to 2 million barrels per day. What this means is that the current efforts to step up production will not be enough to halt the skyrocketing oil prices across the globe.