How Trade War Fears And Iran Sanctions Are Affecting The Global Oil Market

More oil came onto the market than expected in October, causing prices to drop by about 15 percent.

By Alexandra HartNovember 5, 2018 12:30 pm| ,

In September, oil prices reached a nearly four-year high, but now prices are declining: October was the worst month in almost two years. On the flip side, gasoline prices for consumers are at their lowest rate since April. Matt Smith, director of commodity research at ClipperData, says this is all happening because of a large sell-off of oil; he says investors are selling now because they don’t know how trade wars could affect the commodity in the future. He also says investors are anxious about what could happen as sanctions hit Iran.

“We’ve seen more oil coming to market than expected, so the combination of these factors has pulled crude down about 15 percent from those highs,” Smith says.

With sanctions on Iran going back into effect Monday, Smith says that will help reduce some of the extra oil on the market; the sanctions also limit the import of Iranian oil by other countries. The U.S. has granted waivers to eight countries, but Smith says the waivers are most likely a way for the U.S. to gain control over the oil supply, especially in light of recent trade wars. He also says it’s possibly an attempt to avoid a recession.

In Texas, where the oil-and-gas industry has an outsized effect, Smith says the current price of West Texas Intermediate crude oil is at a high enough price that producers likely won’t be significantly affected by the dip in the market. He also says Texans will benefit from lower gas prices.

“There’s always the silver lining as well … that there’s going to be a commensurate drop in the gasoline price,” Smith says. “We’ve seen retail prices in Texas drop below $2.50, dropping about 15, 20 cents in the last month. We’re likely to see another drop of about the same amount as that retail price catches up with the recent fall in oil prices.”

Written by Alexia Puente.