Brent crude is closing in on $100 a barrel as Strait of Hormuz transits stay near a standstill and President Trump escalates an economic campaign against Iran and its oil buyers. Iraq is meanwhile targeting a large output expansion. Iranian crude has also lost its usual discount to China.
Hormuz transits have run in single digits all week. ICE Brent has climbed to $94 a barrel. Asian LNG prices stand at $24 per MMBtu. The geopolitical risk premium built into those prices stems directly from Trump's newly announced "Economic D-Day" push against Tehran.
Trump threatens penalties on Iran's buyers
Trump threatened sweeping penalties against countries trading with Iran, putting China's imports of Iranian oil in the crosshairs as the White House announced the start of "economic warfare" against Tehran. Trump threatened "tremendous consequences" for those countries, according to Oilprice.com.
Iraq targets a sharp output increase
Current production restrictions hold Iraqi output around 2.9 million barrels a day. Despite that, the country's new government claims it plans to reach output of 8 to 10 million barrels a day within six years. Baghdad is seeking a larger OPEC quota and developing export corridors that bypass Hormuz altogether.
Iranian barrels lose their China discount
The US maritime blockade of Iran has restricted new crude shipments to Asia and drained floating storage, pushing some Iranian barrels from a $3 discount to a $2 premium over Brent. As a result, higher prices are forcing Chinese refiners toward Brazilian and Iraqi alternatives instead.
Source: Oilprice.com
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