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U.S. Oil Gets Cheaper Versus Mideast Crude After Iran Sanctions

Updated on
  • WTI’s discount against Dubai oil is at biggest since December
  • U.S. supplies rising while sanctions may curb Iranian exports

The oil price spread that’ll determine the type of crude bought by Asia in the wake of U.S. sanctions on Iran is currently in favor of American supply.

West Texas Intermediate, the U.S. marker, is $3.21 a barrel below Middle East benchmark Dubai. That’s the biggest discount in more than four months, according to data compiled by Bloomberg. The spread between the two crudes will be watched by traders as speculation swirls over how OPEC producer Iran’s exports will be affected after American President Donald Trump renewed sanctions on the Persian Gulf state.

“WTI is expected to be relatively weaker versus other benchmarks on the back of growing Cushing stockpiles and increasing domestic production in the U.S.,” said Virendra Chauhan, an analyst at industry consultant Energy Aspects Ltd., referring to the largest American storage hub. “The loss of Iranian barrels could tighten supplies of Middle Eastern medium-sour crudes and be supportive of Dubai oil, as traders watch for any response from other Gulf producers.”

A lower U.S. benchmark price could make American crudes attractive in Asia. Still, the premium or discount to WTI at which each individual grade pumped in the nation -- be in Eagle Ford from Texas shale fields or Poseidon from the Gulf of Mexico -- would affect its affordability.

WTI futures for July traded just above $71 a barrel Tuesday in New York, while Dubai oil swaps were at over $74, according to data compiled by Bloomberg. The U.S. crude contract fell as much as 0.6 percent to $70.95 a barrel on Wednesday.

Trump last week pulled the U.S. out of a 2015 accord between Iran and world powers that had eased sanctions on the Islamic Republic in exchange for curbs on its nuclear program. His administration has given American allies 180 days to extricate themselves from oil deals with the Middle East producer, or face measures for disrupting the implementation of the renewed sanctions.

Speculation is rising about how refiners in Asia, the world’s biggest oil-consuming region, will tackle the potential threat. Some processors have said they may consider supplies from Saudi Arabia and Kuwait, while others could turn to U.S. crude to make up for any shortfall.

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