Oil prices spike as US prepares end to Iran sanctions waivers

Oil prices spike as US prepares end to Iran sanctions waivers
The US reimposed sanctions on exports of Iranian oil in November after President Trump unilaterally pulled out of a 2015 nuclear accord. Above, an Iranian oil facility. (Reuters)
Updated 22 April 2019

Oil prices spike as US prepares end to Iran sanctions waivers

Oil prices spike as US prepares end to Iran sanctions waivers
  • US President Donald Trump wants to end the waivers to exert ‘maximum economic pressure’ on Iran
  • Global oil markets have also tightened this year because of supply cuts led by the OPEC

WASHINGTON/SINGAPORE: The United States is expected to announce on Monday that all buyers of Iranian oil will have to end their imports shortly or face sanctions, a source familiar with the situation told Reuters, triggering a 3 percent rise in crude prices.
The source confirmed a report by a Washington Post columnist that the administration will terminate the sanctions waivers it granted to some importers of Iranian oil late last year.
Benchmark Brent crude oil futures rose by as much as 3.2 percent to $74.30 a barrel, the highest since November 1, in early trading on Monday in reaction to expectations of tightening supply. US West Texas Intermediate (WTI) futures climbed as much as 2.9 percent to $65.87 a barrel, its highest since Oct. 30.
US President Donald Trump has made clear to his national security team over the last few weeks that he wants to end the waivers to exert “maximum economic pressure” on Iran by cutting off its oil exports and reducing its main revenue source to zero.
In November, the US reimposed sanctions on exports of Iranian oil after President Trump unilaterally pulled out of a 2015 nuclear accord between Iran and six world powers.
Washington, however, granted waivers to Iran’s eight main buyers — China, India, Japan, South Korea, Taiwan, Turkey, Italy and Greece — that allowed them limited purchases for six months.
On Monday, Secretary of State Mike Pompeo will announce “that, as of May 2, the State Department will no longer grant sanctions waivers to any country that is currently importing Iranian crude or condensate,” the Post’s columnist Josh Rogin said in his report, citing two State Department officials that he did not name.
On April 17, Frank Fannon, US Assistant Secretary of State for Energy Resources, repeated the administration’s position that “our goal is to get to zero Iranian exports as quickly as possible.”
Peter Kiernan, lead energy analyst at the Economist Intelligence Unit (EIU) said “a severe loss in (Iranian) volumes will put pressure on the supply side, given the political uncertainty currently blighting other oil exporters, such as Venezuela and Libya.”
Global oil markets have also tightened this year because of supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC).
As a result, Brent prices have risen by more than a third this year, and WTI more than 40 percent over the same period.
Kiernan said he expected the “Trump administration to try to rely on Saudi Arabia ... to reverse policy and increase volumes to calm market fears of oil supplies quickly tightening.”
Saudi Arabia is the world’s biggest exporter of crude oil and OPEC’s de facto leader.
“If there is a time for the US to be able to take a hard line it is now, with the Saudis having over 2 million barrels (per day) of spare capacity,” said Tony Nunan, oil risk manager at Mitsubishi Corp. in Tokyo.
An end to the exemptions would hit Asian buyers the hardest. Iran’s biggest oil customers are China and India, who have both been lobbying for extensions to sanction waivers.
South Korea, a close US ally, is a major buyer of Iranian condensate, an ultra-light form of crude oil that its refining industry relies on to produce petrochemicals.
Government officials there declined to comment as well, but Kim Jae-kyung of the Korean Energy Economics Institute said the end of the sanction waivers “will be a problem if South Korea can’t bring in cheap Iranian condensate (for) South Korean petrochemical makers.”
Japan is another close US ally in Asia that is also a traditionally significant buyer of Iranian oil.
Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corporation (JOGMEC) said the end of the sanction waivers “is not a good policy for Trump.”
Nogami said he expected oil prices to rise further because of the US sanctions and OPEC-led supply cuts.
So far in April, Iranian exports were averaging below 1 million barrels per day (bpd), according to Refinitiv Eikon data and two other companies that track exports and declined to be identified.
That is lower than at least 1.1 million bpd estimated for March, and down from more than 2.5 million bpd before the renewed sanctions were announced last May.


China economy grows in 2020 as rebound from coronavirus gains

China economy grows in 2020 as rebound from coronavirus gains
Updated 18 January 2021

China economy grows in 2020 as rebound from coronavirus gains

China economy grows in 2020 as rebound from coronavirus gains
  • Growth in the three months ending in December rose to 6.5 percent over a year earlier
  • China’s quick recovery brought it closer to matching the US in economic output

BEIJING: China eked out 2.3 percent economic growth in 2020, likely becoming the only major economy to expand as shops and factories reopened relatively early from a shutdown to fight the coronavirus while the United States, Japan and Europe struggled with rising infections.
Growth in the three months ending in December rose to 6.5 percent over a year earlier as consumers returned to shopping malls, restaurants and cinemas, official data showed Monday. That was up from the previous quarter’s 4.9 percent and stronger than many forecasters expected.
In early 2020, activity contracted by 6.8 percent in the first quarter as the ruling Communist Party took the then-unprecedented step of shutting down most of its economy to fight the virus. The following quarter, China became the first major country to grow again with a 3.2 percent expansion after the party declared victory over the virus in March and allowed factories, shops and offices to reopen.
Restaurants are filling up while cinemas and retailers struggle to lure customers back. Crowds are thin at shopping malls, where guards check visitors for signs of the disease’s tell-tale fever.
Domestic tourism is reviving, though authorities have urged the public to stay home during the Lunar New Year holiday in February, normally the busiest travel season, in response to a spate of new infections in some Chinese cities.
Exports have been boosted by demand for Chinese-made masks and other medical goods.
The growing momentum “reflected improving private consumption expenditure as well as buoyant net exports,” said Rajiv Biswas of IHS Markit in a report. He said China is likely to be the only major economy to grow in 2020 while developed countries and most major emerging markets were in recession.
The economy “recovered steadily” and “living standards were ensured forcefully,” the National Bureau of Statistics said in a statement. It said the ruling party’s development goals were “accomplished better than expectation” but gave no details.
2020 was China’s weakest growth in decades and below 1990’s 3.9 percent following the crackdown on the Tiananmen Square pro-democracy movement, which led to China’s international isolation.
Despite growth for the year, “it is too early to conclude that this is a full recovery,” said Iris Pang of ING in a report. “External demand has not yet fully recovered. This is a big hurdle.”
Exporters and high-tech manufacturers face uncertainty about how President-elect Joseph Biden will handle conflicts with Beijing over trade, technology and security. His predecessor, Donald Trump, hurt exporters by hiking tariffs on Chinese goods and manufacturers including telecom equipment giant Huawei by imposing curbs on access to US components and technology.
“We expect the newly elected US government will continue most of the current policies on China, at least for the first quarter,” Pang said.
The International Monetary Fund and private sector forecasters expect economic growth to rise further this year to above 8 percent.
China’s quick recovery brought it closer to matching the United States in economic output.
Total activity in 2020 was 102 trillion yuan ($15.6 trillion), according to the government. That is about 75 percent the size of the $20.8 trillion forecast by the IMF for the US economy, which is expected to shrink by 4.3 percent from 2019. The IMF estimates China will be about 90 percent of the size of the US economy by 2025, though with more than four times as many people average income will be lower.
Exports rose 3.6 percent last year despite the tariff war with Washington. Exporters took market share from foreign competitors that still faced anti-virus restrictions.
Retail spending contracted by 3.9 percent over 2019 but gained 4.6 percent in December over a year earlier as demand revived. Consumer spending recovered to above the previous year’s levels in the quarter ending in September.
Online sales of consumer goods rose 14.8 percent as millions of families who were ordered to stay home shifted to buying groceries and clothing on the Internet.
Factory output rose 2.8 percent over 2019. Activity accelerated toward the end of the year. Production rose 7.3 percent in December.
Despite travel controls imposed for some areas after new cases flared this month most of the country is unaffected.
Still, the government’s appeal to the public to avoid traditional Lunar New Year gatherings and travel might dent spending on tourism, gifts and restaurants.
Other activity might increase, however, if farms, factories and traders keep operating over the holiday, said Chaoping Zhu of JP Morgan Asset Management in a report.
“Unusually high growth rates in this quarter are likely to be seen,” said Zhu.