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US decision on Iran could keep oil prices higher

US decision on Iran could keep oil prices higher

Posted on: 5/10/2018 | Author: ATB Financial's Economics + Research Team

​​All eyes were fixated on whether or not the US would withdraw from the Iran nuclear deal earlier this week. The decision to withdraw announced on Tuesday rippled through oil markets causing high volumes of trading and volatility in price. That’s because Iran is the third largest producer in the Organisation of the Petroleum Exporting Countries (OPEC).

How will this affect oil prices going forward?

In the context of North America, the price of a barrel of West Texas Intermediate stands at levels last experienced in 2014. Currently, the North American benchmark for oil sits around $US 70 per barrel, about 10 per cent higher than the beginning of the year. Western Canadian Select, a key benchmark for Alberta's oil sector, sits around $US 55 per barrel.

The rise in oil’s price throughout 2018 is due to the rebalancing of supply and demand fundamentals. Since oil’s price slide on the back end of 2014 and 2015, global demand has improved and cuts to production from OPEC have helped push prices higher. The more recent improvements in oil’s price have had to do with the anticipation of the US announcement and the announcement itself as well as other supply disruptions.

While there are many factors that affect the price of oil, the US decision to withdraw from the nuclear deal and impose sanctions on Iran could eventually cause less oil on the global market and keep oil’s price higher.

Oil prices, graph

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