Oil hit fresh highs on US’ plans to tighten grip on Iran

Oil prices soared to the highest since November on Monday on concerns of a supply crunch after the United States (US) announced a further restriction on Iranian oil exports.

Brent crude oil futures rose by 2.88% to US$74.04 per barrel. Trading reached a session high of US$74.52 per barrel, the highest since November 1.

US West Texas Intermediate crude futures gained 2.66% to US$65.70 per barrel, hitting a high of US$65.92, the highest since October 31.

In November, the US re-imposed sanctions on exports of Iranian oil in an attempt to pressure Iran to restrict its nuclear program and stop supporting militant proxies in the Middle East.

Countries such as China, India, Italy, and Greece were allowed waivers on purchasing Iranian oil for six months.

On Monday, the US demanded that buyers of Iranian oil stop their purchases by May 1 or face sanctions in an attempt to further enforce on the requests it gave in November after Tehran remained defiant.

The latest announcement will block Iran from the US$50 billion annual oil revenues it relies heavily on.

Oil supply

According to Refinitiv Eikon data, Iranian oil exports average below 1 million barrels per day in April. The quantity is lower than the 1.1 million barrels per day estimated for March.

Before the sanctions were re-imposed in May last year, the country’s oil exports averaged at 2.5 million barrels per day.

A further drop in Iranian exports will squeeze the already tight oil market. The Organization of the Petroleum Exporting Countries (Opec) and allied producers including Russia have voluntarily cut output, which has helped raise oil prices by more than 35% this year. Meanwhile, Opec member Venezuela is also under sanctions from the US for political reasons.

The White House said it was working with top oil exporters Saudi Arabia and the United Arab Emirates to ensure that the market was ‘adequately supplied’.