Rather than resort to war, U.S. President Donald Trump decided to bring down the hammer with more sanctions on Iran in response an unmanned U.S. drone being shot down the previous week. As U.S.-Iran relations remain tenuous, oil traders could be eyeing more price increases for the commodity, but are they overestimating the impact of the latest sanctions?
“We will continue to increase pressure on Tehran until the regime abandons its dangerous activities,” including its nuclear ambitions, Trump told reporters in the Oval Office.
Oil prices could maintain their support levels this week as tensions between the United States and Iran continue to play out with U.S. Secretary of State Mike Pompeo saying that “significant” sanctions could be in store for Iran.
An unmanned U.S. drone was shot down by Iran last week, which fanned the flames of growing tensions within the Middle East. However, President Trump tamped down any ideas of waging war on Iran, calling off a retaliatory military strike.
U.S. intelligence was quick to identify Iran as the culprit of the attacks. According to video evidence, Iran’s Revolutionary Guard was shown removing an unexploded from one of the two oil tankers that were attacked.
The heightened tensions caused oil prices to rise as Brent crude futures and West Texas Intermediate (WTI) crude oil were up just under 1 percent on Monday. Last week, Brent crude gained 5 percent while WTI jumped 10 percent, notching its biggest gain since December 2016.
Oil traders betting on more price increases can look to exchange-traded funds (ETFs) like the United States 3x Oil (NYSEArca: USOU), ProShares UltraPro 3x Crude Oil ETF (NYSEArca: OILU) and the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares (NYSEArca: GUSH).
Whether or not the latest sanctions do impact the oil markets will depend on who you ask.
“New sanctions would likely have limited impact, particularly on the oil sector, as current U.S. sanctions have essentially eliminated Iranian crude from the global marketplace,” said Robbie Fraser, senior commodity analyst at Schneider Electric. “As the situation continues, the Hormuz Strait remains the key area to watch, with Iran capable of temporarily – though not permanently – disrupting oil shipments through the region.”
Supply cuts by the Organization of Petroleum Exporting Countries (OPEC) have pushed oil prices down, but downward forces from trade wars have also kept them in check. Oil prices rocketed higher last month following President Trump ending waivers on companies wishing to purchase Iranian oil without facing stiff sanctions. The companies affected most by these waivers were China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey.
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