Oil prices drop due to political tensions

Tillerson’s dismissal no doubt raises geopolitical risk in the oil market

By Joaquin Robles

19/03/2018

XTB Analyst

Oil prices fell to $61 per barrel, with investors concerned over geopolitical tensions after Rex Tillerson‘s dismissal as U.S. Secretary of State.

Rex Tillerson’s dismissal

Nevertheless, WTI futures had little activity in the New York stock exchange after last Tuesday’s highs. This following U.S. President Trump’s decision to dismiss Rex Tillerson as Secretary of State. Tillerson’s layoff was rooted in severe disagreements with the president on key subjects, including OPEC member Iran.

Investors believe that Rex Tillerson’s dismissal could deteriorate U.S. relations with the Persian Gulf. Meanwhile, there is a possibility that sanctions to the Middle Eastern producer are renewed, which could affect its exports and boost prices.

Boosting prices

Crude prices have had a rough time recovering from last month’s market drops after hitting $66 per barrel in January. On the other hand, positive economic forecasts have managed to support a strong demand, growing U.S. production, and the rise of stocks, which continues to be a challenge for the OPEC. For their part, the organization and its allies are trying to boost prices with the production cut agreement.

Tillerson’s dismissal no doubt raises geopolitical risk in the oil market. Although the market is declining in the face of forecasts indicating growing U.S. production, the reorganization of Trump’s cabinet could raise prices.

The West Texas Intermediate for April delivery is trading at $60.79 per barrel on the New York stock exchange. Total volume traded stood at about 35 percent under the 100-day average.

Meanwhile, the ICE Brent crude Futures for May delivery stood at $64.65 per barrel, a $3.84 difference from the WTI for May delivery.

Equity markets saw a negative turn after Rex Tillerson’s dismissal. However, oil prices took an upturn encouraged by Trump’s plan to replace the former Exxon Mobil CEO with Mike Pompeo. This increases the chances that the U.S. may exit the agreement by which international sanctions on Middle Eastern nations were lifted in exchange for limiting their nuclear programs.

Exports to Iran

If these measures were to be restored, Iranian oil exports could increase as a result, going from 250,000 to 500,000 bpd by the end of the year. This reorganization entails significant implications, both for Iran and the U.S. energy policy.

The American Petroleum Institute reported that U.S. oil stocks increased by 1.16 million barrels last week. Stocks doubled on Wednesday, thus shattering expectations that they could be back to five-year averages and provoking slight downturns.

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