As we go to press, the remaining JCPOA parties are still committed to the agreement, but more U.S. sanctions are expected.
countries had dropped back to five-year average levels due to OPEC production cuts. But it also expects this drop in surplus oil to correct over the next six months. The EIA estimates that the U.S. will produce an average of 10.5 million barrels per day in 2018. And while the U.S. consumes more than it produces (about 20 million barrels per day in 2017), it’s unlikely that even the hypothetical one million-barrel global loss would hurt oil prices in the long term without further cuts from OPEC or manipulation by futures traders. In the short term, a rise in gasoline prices is possible, with diesel likely taking the brunt of it. But analysts and the EIA don’t expect prices to bounce much higher than $3 for a gallon of regular unleaded. The ‘buyback boom’ has resumed... According to Goldman Sachs, S&P 500 companies are on track to announce $650 billion worth of share repurchases this year. This would trounce the previous all-time record of $589 billion set in 2007. But share buybacks are a “double- edged sword”... When shares are trading at a relatively cheap valuation and the company has the cash to fund them, buybacks can be great for investors. But today, we’re seeing many firms buying back shares at historically high valuations. Worse, most are borrowing heavily to do so. These companies are likely to regret these decisions
What about Iran’s oil?
With the disruption of the JCPOA comes the potential loss of Iranian oil on the global market – estimated at about 500,000 barrels per day – and its effect on oil prices. European benchmark Brent crude has already seen its price rise to more than $75 a barrel, the highest in more than three years. But this was on the expectation that Trump would reject the deal and the market would see less Iranian oil... In other words, futures traders had “priced in” the expected withdrawal. When sanctions on Iran lifted two years ago, it was able to double its oil exports to about 2.2 million barrels a day – roughly 3% of global output. Europe quickly became a major buyer, and that’s where the 500,000-barrel- per-day loss comes in. European buyers and businesses that deal with both Iran and the U.S. will likely withdraw business from the country before putting their U.S. dealings at risk. So what does this mean for oil in the United States? Not much so far. Even the most extreme long-term estimates – about a million barrels a day – only account for 1% of global demand. And Venezuela’s oil production has already fallen by a similar amount, also about 500,000 barrels per day, with little disruption to the global oil market. That said, on May 16 the U.S. Energy Information Administration (EIA) announced that oil stockpiles in the U.S. and cooperating
when the next downturn arrives. What could possibly go wrong?
American Consequences 13
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