Flashpoints for crude oil price spike intensify

Flashpoints across key global energy supply regions have taken new dimension overshadowing a rising US crude oil output with the potential to cause fresh price volatility, particularly as global spare capacity weakens. It is estimated that about 10 million barrels of oil per day could be put at risk.

Most Iran nuclear deal watchers expect US President Donald Trump to re-impose oil sanctions on Tehran. Iran’s oil output has regained most of its previous market share since sanctions were lifted in January 2016, growing 1 million b/d to hover around 3.83 million b/d, an output which could be impacted with renewed US sanctions.

Venezuela’s May 20 elections are expected to be a trigger for potential new sanctions, which could target oil or refined product flows. The US has said that it may impose further sanctions if it believes democracy is being undermined which could worsen the situation. Its production of about 1.49 million b/d is a drop of around 40 percent over the last two years from 2.35 million b/d, as lower prices and a crippled economy prevent investment.

Yemen’s production output of 30,000 b/d is not enough to influence the market negatively but the country’s Houthis rebels backed by Iran have attacked oil shipments in local waters raising concerns about shipping oil through the Red Sea. About 4.8 million b/d of crude/products transited through the Red Sea in 2016, representing nearly 5 percent of global maritime trade, according to the Energy Information Administration (EIA).

Just like Yemen, Syria’s production of 20,000 b/d cannot impact the market but the proxy-war being fought in Syria is seen as a direct risk to oil with Russia and Iran supporting President Bashar Assad’s forces setting the stage for broader Middle East tension.

Iraq’s production output of 4.46 million b/d could be affected by the simmering tensions with semi-autonomous Kurdistan in northern Iraq. The potential for a new push by Baghdad to take control of oil fields in Kurdish areas is also a risk.

Libya’s oil production remains around 1 million b/d, far below pre-war levels of 1.6 million b/d. The lack of a clear legitimate government continues to fuel protests and attacks which have caused major disruptions to producing fields, pipeline and export infrastructure.

FRANK UZUEGBUNAM