WTI is now building a base above the $60 handle. Looking forward we anticipated that crude oil will continue to firm over the summer. Our expectation for tighter market conditions is based on demand from US summers driving season and low gasoline inventories. Ultra strong household position indicates that 2019 vacation spending will be healthy. On the supply side, US sanction on Iranian production has slowed to levels not seen since 2013 and scheduled maintenance in North Sea and Caspian Sea will limit immediate production reaction. So far, Saudi Arabia has not increased production to OPEC assured 10.3mn output to manage higher prices. This week negative US-China trade news has marginally weighted on crude prices.
Outside of cyclical development, we remain constructive on oil prices due to broader structural changes. Since the US unilaterally withdrew from the Joint Comprehensive Plan of Action (JCPOA) tension between the two nations have only increased. In November 2018 the US re-imposed all sanctions on Iran with the US extending waver on imported Iranian crude for six months. On April 22nd the US state department announced that no more waivers would be allowed after May 2nd, 2019. The US geopolitical strategy to manage Iran is focused on reducing Iran’s oil-based revenue to zero. Oil price development remains related to Iran production decline and Saudi motivation to gain market share by raising output levels.
