There has been a great deal of uncertainty about the direction of oil prices.
Much of the uncertainty turns on President Trump’s pending decision on whether to renew economic sanctions on Iran. That decision could take barrels of oil off the market on one hand and growing U.S. production and efficiency gains that are boosting supplies on the other. Once the President decides what to do about Iran, the market is sure to break out definitively from its current tight trading range in one direction or the other.
On May 8, the market will receive the Energy Information Administration’s (EIA) monthly short-term energy outlook. The focus is expected to be on estimates of U.S. crude oil production. Last month’s report said that the EIA projects U.S. crude production to average 10.7 million barrels per day in 2018. This would make it the highest annual average U.S. crude oil production level. In addition, it would surpass the current record of 9.6 million barrels per day set in 1970.
In last month’s report, the EIA also forecast that 2019 crude oil production would again increase. The expect production would average 11.4 million barrels per day. In addition, traders and analysts will be reviewing this month’s report for any revisions to these production expectations. Higher estimates could put downward pressure on oil prices, especially if President Trump postpones a decision on the status of the Iran nuclear accord.
However, over the past few days oil prices have begun to rise. This suggests that the market believes that it is more likely that the U.S. will withdraw from the Iranian nuclear agreement and re-impose sanctions.
U.S. sanctions on Iran could slash global oil supplies by 800,000 barrels per day.
Furthermore, some comments from administration insiders imply that the U.S. will withdraw from the Iranian accord.
Trump attorney Rudy Giuliani suggested that Donald Trump plans to pull the U.S. out of the Iran nuclear agreement. He pointed to the presence in the president’s inner circle of new Secretary of State Mike Pompeo and long-time foreign policy hawk John Bolton.
“We have a president who is tough.” “We have a president who is as committed to regime change as we are.”
“What’s going to happen to that agreement?” He then pantomimed spitting on a piece of paper meant to represent the 2015 nuclear accord.
It appears that a decision has not yet been made. Trump faces a May 12 deadline to decide. The president has refused to reveal what he will do. He has repeatedly said that the accord is a bad deal for the U.S. However, the president has also said that his antipathy toward the accord “doesn’t mean I wouldn’t negotiate a new agreement.”