Crude oil market future remains uncertain

Despite crude oil prices hovering around $70perbarrel, the market outlook remains uncertain.

Global benchmark Brent crude futures gained 74 cents to settle at $74.74 a barrel, while US West Texas Intermediate (WTI) crude were up 14 cents to $68.19 a barrel. The differential between Brent and WTI has steadily widened since early March when the gap stood at roughly $3/b.

Risks to oil supply remain an issue for traders given the uncertain fate of the Iran nuclear deal and the unfolding economic crisis in Venezuela causing a decline in the country’s crude output.

However, the diplomatic breakthrough on the Korean Peninsula is taking away one source of geopolitical risk, at least for now following the historic summit that marked the first time a North Korean leader has crossed the border into South Korea in decades.

North Korean leader Kim Jong Un and South Korean President Moon Jae-in pledged to formally end the war between the two countries and to denuclearize the Korean peninsula.

“The environment remains nevertheless volatile with persistent uncertainty around the evolution of global supply,” according to French oil major Total in its quarterly statement.

Paal Kibsgaard, Schlumberger chairman and CEO said it is likely the industry will see supply challenges through 2018 “and a significant increase in global exploration and production investment will be required to minimize the impending deficit.”

But the US-Iran relations throws up more uncertainty into the mix. Some oil traders are already steering clear of doing business with Iran as President Donald Trump signals he will ditch the nuclear deal with OPEC’s third-largest producer. Traders are unwilling to sign contracts for Iranian crude and refined products that would be valid after May 12, the deadline for Trump to decide whether to re-impose sanctions.

Some of the traders buying Iranian oil said their existing contracts contain clauses allowing them to stop taking cargoes if sanctions are re-imposed. The traders would probably exercise that right to protect their business interests in the US from legal action.

However, BP chief executive Bob Dudley has warned about sanctions being “handed out like train tickets” as international pressure builds against Russia and expectations rise that the US could reinstate sanctions against Iran.

“There’s a lot of geopolitical tension out there. The uncertainty around sanctions may be one of the bigger factors and secondly the dollar is dropping. We are off the fairway now,” Dudley said, adding that BP was not going to “plan the company” on the basis of $75 oil prices.

FRANK UZUEGBUNAM