A slew of potential supply constraints faces the oil market, mostly coming from Middle Eastern countries.
Reflecting these concerns, Brent oil remained near several-year highs on Monday, hovering around $77 per barrel at 3:30 pm Eastern Monday.
One main concern for oil traders is the fallout from the US withdrawing from the Iran deal. The deal, which was forged back in late 2015, lifted crippling sanctions on Iran and allowed the country to resume exporting millions of barrels of oil per day. Oil markets surged back in May on news that the US was pulling out of the deal, and CNBC cites analysts who say that the impending US sanctions could cut Iranian oil exports by up to 1 million barrels per day.
PVM Oil Associates analyst Tamas Varga told The Wall Street Journal “at the moment, supply events are still driving oil prices … Oil investors have not lost faith in further upside just yet due to the looming Iranian sanctions.”
Additionally, signs of instability in other major oil-producing nations threatens potential supply disruptions. On Monday morning, the Wall Street Journal reported an armed attack on the Libyan state-run National Oil Corporation’s headquarters, which left two dead and 10 injured. This comes in the wake of a series of violent protests in Iraq, culminating in an attack on the Iranian consulate in Basra. Although the Iraqi government has asserted that supply has been unaffected, there are concerns about what could happen if the protests escalate.
In an interview with CNBC, RBC Capital Markets Managing Director Helima Croft discussed some of the drivers of these protests.
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“It’s very bad in Basra,” Croft said. “I mean, we’ve had these protests over the summer for the past couple of years. You have a situation in Basra, it’s the main oil production region in the country, and they complain; they don’t have clean water, they don’t have regular electricity, and that’s a big issue when it’s over 100 degrees [Fahrenheit] in August. But we really have had health crises this summer – 17,000 people went to the hospital in August with cholera, they’re concerned about how the health situation is devolving there – and we’ve had massive protests against the entire political class in the region.”
Despite these supply constraints, any future oil price increases might be dampened by potential easing of demand. Trade war tensions have many concerned about future global economic output and incoming Hurricane Florence threatens to bring widespread power outages across North Carolina, South Carolina, and Virginia.
Investors looking for exposure to the oil market should consider the United States Oil Fund (NYSEArca: USO), which seeks to track the performance of US-produced West Texas Intermediate oil, or the United States Brent Oil Fund (NYSEArca: BNO), which seeks to track the performance of foreign-produced Brent oil.
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