Energy Prices Surge Amid Iran Trade Ban

Strategic Insights -

Energy prices rose across the board on President Clinton's pledge to ban all trade with Iran, blocking about $4 billion worth of Iranian crude supplies to U.S. companies. The increased demand for alternative oil sources and ongoing U.S. refinery problems fueled a surge in oil futures contracts, reaching a daily high of $20.80/bbl on the New York Mercantile Exchange (Nymex). The June crude contract also edged toward its goal of $21/bbl, according to analysts. Simultaneously, June gasoline futures contracts on the Nymex gained 0.76 cents to reach 64.15 cents/gallon, driven by refinery buying in the Gulf Coast and impending reformulated gasoline (RFG) shipments from Europe.

Key Takeaways:

  • The Iran trade ban led to a 42-cent increase in the June oil futures contract on the Nymex, reaching $20.80/bbl, and a 0.76-cent gain in June gasoline futures contracts to 64.15 cents/gallon.
  • The June crude contract is expected to reach $21/bbl, with analysts citing the Iran trade embargo and ongoing U.S. refinery problems as fundamental strengths to the market.
  • Although the Iran trade embargo may displace supply for a while, it is unlikely to result in a shortage, as there is still plenty of crude on the market.
  • U.S. companies such as Coastal Corp. and Texaco Inc. have reduced their Iranian crude purchases due to high prices, while others will buy more from Saudi Arabia, Kuwait, Russia, Britain, and South America.
  • West Texas Intermediate (WTI) crude prices averaged $20.40-$20.50/bbl, up about 20 cents as the market absorbed the immediate impact of the news on Iran.
  • Amoco Corp. and Exxon Corp. were active buyers in the cash gasoline market due to refinery problems, with Amoco's Texas City refinery reporting a 193,000 b/d catalytic cracker down due to an emissions problem.
  • The appeals court ruling striking down the Environmental Protection Agency's ethanol mandate has not had a prolonged impact on gasoline prices.

Statistics:

  • Energy prices rose across the board, with the June crude contract on the Nymex shooting up 42 cents to $20.80/bbl and the June Brent crude contract on London's International Petroleum Exchange (IPE) up 11 cents to $19.17/bbl.
  • The June crude contract, which is edging toward $21/bbl, has a good chance of reaching its goal, with one analyst stating that there would be a 29 cents June/July spread on Nymex.
  • West Texas Intermediate (WTI) crude prices averaged $20.40-$20.50/bbl, up about 20 cents.
  • June gasoline futures contracts on the Nymex gained 0.76 cents to reach 64.15 cents/gallon.

Sources:

  • WASHINGTON -- (no date)
  • New York Mercantile Exchange (Nymex)
  • International Petroleum Exchange (IPE)
  • Paribas Futures Inc.
  • Coastal Corp.
  • Texaco Inc.
  • Amoco Corp.
  • Exxon Corp.