Oil Prices Fall Amid Doubts Over Iran Sanctions

Oil prices experienced a decline on Wednesday as investors reacted skeptically to Donald Trump's latest "maximum pressure" sanctions on Iran. Instead, attention shifted towards the significant increase in U.S. crude inventories, which has raised doubts about the effectiveness of the economic sanctions against Iran.

Despite the president's tough stance, market participants are unconvinced that Iranian oil exports will face substantial disruption anytime soon.

West Texas Intermediate crude oil, as monitored by the United States Oil Fund (USO), dropped by 1.6%, reaching $71.50 per barrel, inching closer to its lowest daily close since December 31, 2024.

The U.S. Energy Information Administration reported a notable surge in commercial crude oil inventories by 8.66 million barrels for the week ending on January 31, significantly surpassing the projected increase of 2.6 million barrels. Additionally, gasoline stocks rose by 2.23 million barrels, further applying downward pressure on oil prices.

Traders Question Trump's Impact on Iranian Oil

On Tuesday, Trump signed a memorandum aimed at tightening economic sanctions on Iran, claiming he is determined to prevent the country from developing nuclear weapons. "With me, it's very simple. Iran cannot have a nuclear weapon," Trump stated, emphasizing his firm approach.

However, markets responded with a degree of skepticism. According to Sipan Habib, a derivatives trader at Novion, the recent visit by Israeli Prime Minister Netanyahu to the U.S. may have influenced heightened rhetoric from the White House concerning Iran. Habib noted, "Traders are aware that Trump's bark is far worse than his bite. While he is loudly discussing sanctions that may limit Iranian oil supply, the reality is that rising oil prices lead to higher gas prices, a significant concern for voters back home."

Potential Impact on Iranian Oil Exports

During Trump’s previous term, Iranian oil exports plummeted to lows of approximately 400,000 barrels per day. However, under the administration of former President Joe Biden, these exports rebounded considerably.

Energy Intelligence estimates that Iranian crude exports averaged around 1.7 million barrels per day in 2024, marking the highest levels seen in six years. The majority of these exports are directed towards China, either directly or through intermediaries in Malaysia, where shipments can be concealed.

In order to effectively reduce Iranian oil exports, Trump would likely need to persuade or secure cooperation from China, the primary buyer of Iran’s crude. Reports indicate that China has shown little willingness to restrict its Iranian imports in recent times, leading to uncertainty surrounding the effectiveness of Trump's renewed sanctions on Tehran's oil revenue.

Goldman Sachs Forecasts Limited Supply Disruptions

In a recent note, Goldman Sachs commodity strategist Daan Struyven indicated that markets are beginning to experience certain disruptions due to U.S. sanctions affecting both Iranian and Russian oil flows.

Struyven highlighted that Russian oil storage on floating vessels increased by 17 million barrels since the sanctions on January 10, with expectations that it could reach 50 million barrels in the first half of 2025. This situation might lead spot oil prices to rise by $2 per barrel. Additionally, floating storage of Iranian oil has reportedly increased by 14 million barrels since the beginning of the year.

Despite these developments, Goldman Sachs maintains a cautious outlook on the overall impact. The firm anticipates a modest decline in Iranian production of around 400,000 barrels per day this year. However, if sanctions are enforced more stringently, this figure could potentially rise to a 1 million barrel-per-day drop, possibly pushing Brent crude prices into the high $80s by May.

oil, Iran, Trump