WTI crude was over $69 in the first week of August, and Brent crude was close to $74; both had risen only about one percent over the preceding week. Yet, many analysts are positive about accelerating prices. Once the U.S. sanctions against Iran begin to take effect, many are confident that numbers such as $90 are to be expected, probably by December.
Is Every Country On Board With the Sanctions?
It is the U.S. government’s position that every country that continues to buy oil from Iran will attract various penalties. However, there are some countries that are too powerful to be pressured. China is one. The Asian giant has announced that while it will go as far as to refrain from increasing its imports from Iran, it won’t lower import levels. India, Iran’s second-largest customer, has agreed to lower imports somewhat, but will not shut Iranian oil out, either.
Europe and countries in many other parts of the world, however, do plan to support American sanctions and stay away from trade with Iran.
The loss of Iranian oil, experts believe, will take about a million barrels a day off the market. It isn’t the only source of loss to the global oil supply, however. Venezuela’s oil industry stands crippled as well, and its resources are not available for export. Certainly, OPEC nations other than Venezuela have responded by raising production, but they have been unable, so far, to offset losses of production at these countries.
Other Sources of Pressure on the World’s Oil Supply
Iran and Venezuela may be the most significant sources of pressure on oil prices in the short term. Last December, however, there will be other factors at play. According to analysts at Morgan Stanley, fresh pressure on prices comes from new shipping regulations put in place by the International Maritime Organization, to come into effect by the year 2020. These requirements are aimed at better environmental protection through the lowering of sulfur content in shipping fuels from the 3.5% seen now, to less than 0.5%. This is likely to lead to a great surge in demand for diesel, marine gas, oil and other middle distillate products that come from crude.
Demand for these fuel types is likely to rise by 1.5 million barrels a day. Crack spreads will move higher and will take oil prices with them. While global oil production is likely to rise considerably by the year 2020, it is almost certain that the 5.7 million barrels a day needed then will not be met. The last time that a surge in middle distillate prices occurred was in 2007, and it was an important reason why oil prices went close to $150 a barrel then.
How Does American Oil Benefit?
According to Sigma Drilling Technologies, a well-respected producer of innovative suction stabilizer and mud pump pulsation dampener products used by drilling operations, American shale regions produce oil of the light variety, a kind not suited to the production of the middle distillates that the shipping industry requires. Shipping industry demands will suck up crude from the rest of the world, however, and raise prices overall. With prices pushed to $90 or greater, American producers will find that they benefit indirectly.
Are you interested in learning more about the pulsation solutions offered by Sigma Drilling Technologies? Request a free product demonstration by calling (281) 656-9298 or filling out our contact form today.
